To The Moon

Key points

• Nvidia’s stock has retraced nearly everything from the DeepSeek threat as BofA highlights reasons why those fears are overblown.

• If returns on investments don't pan out, AI demand could fall far short of optimistic predictions and drive Nvidia stock lower.

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Shares of Nvidia Corp. notched another gain Tuesday, as investors have been given more reason to believe the perceived threat from DeepSeek’s artificial-intelligence platform is overblown.

BofA Securities analyst Vivek Arya said while Wall Street continues to debate the impact of China-based DeepSeek’s “overstated” claim of lower costs to develop AI, new plans to boost AI spending keep emerging.

Nvidia’s stock rose 0.4% on Tuesday and has climbed 6.9% amid a three-day win streak. It has now retraced about 90% of the selloff it suffered after the DeepSeek threat first came to light — causing a 17% plunge in Nvidia’s stock on Jan. 27, and a total 18.2% dive through Feb. 3.

BofA’s Arya said global investors may have also missed the announcement last week at the AI Action Summit in Paris that the European Commission would invest 200 billion euros ($209.2 billion) on AI infrastructure, including 20 billion euros for AI gigafactories.

France also announced at the summit 109 billion euros in private investments into AI infrastructure and deployment projects.

Arya wrote in a Tuesday note to clients that these announcements out of Europe show there is “no discernible near/medium-term risk from any DeepSeek-related AI-model optimization.”

He reiterated his buy rating on Nvidia’s stock and his $190 price target, which implies about 35% upside from current levels.

And while DeepSeek raised some fears that, after rocketing 171% in 2024 and 239% in 2023, Nvidia’s stock may be overvalued, Arya wrote: “Nvidia’s prowess as a ‘computing platform’ — versus chip-only peers — with consistent hardware/software optimization is ideally suited to the fast-changing AI environment, in our view.”

Nvidia’s stock has now gained 3.8% this year, while the PHLX Semiconductor Index SOX has rallied 5.4% and the S&P 500 index SPX has advanced 4.2%.

Other governments' spending plans are lifting shares as well. At the recent Paris AI summit, French President Emmanuel Macron announced a $113 billion investment plan that included nuclear power projects for artificial intelligence computing. The plan is to use 120,000 Nvidia chips in the first phase and 500,000 in 2018.

Also, President Donald Trump's Stargate project plans to invest $500 billion in AI.

Nvidia Chart Flashes Strength Ahead Of Earnings

Nvidia will report its fourth-quarter results on Feb. 26. FactSet estimates stand at $38 billion in revenue and 84 cents per share in earnings. That indicates a 72% increase in sales and 64% in earnings.

Earnings bring some risks. Add that to the fact that this is the first earnings season since 2022 that the Magnificent Seven companies have not reported a sales surprise.

But Nvidia's price performance is beginning to improve. The relative strength line, which compares the stock with the S&P 500 index, is rising after it sank on Jan. 27, when Nvidia suffered the biggest one-day market cap loss for any public company on record. 

In terms of 12-month price performance, Nvidia has beaten 89% of other stocks in Investor's Business Daily's database.

This might be peak Nvidia

I'm calling it: Peak Nvidia is almost here, and it's close to the point where the stories and predictions keeping the AI boom afloat start to fall apart. It's not that AI isn't an impressive and useful technology. Like the internet, it's revolutionary.

But also like the internet 25 years ago, it's creating expectations that appear untethered from reality. The internet changed the world but also ruined plenty of investors along the way.

I could be very wrong about this. It's certainly possible that the hundreds of billions of dollars being spent on AI infrastructure will make financial sense in the end and demand for AI accelerators will continue to grow far into the future. Maybe Nvidia will put out a stellar forecast that drives the stock to new highs. Anything is possible.

Still, I don't think I'd want to be an Nvidia shareholder on Feb. 26 when the company reports its latest results. Expectations are sky high, and any hint of trouble could send the stock plunging.