Two justifications for purchasing Nvidia shares in light of DeepSeek's developments.
In 2025, Nvidia's stock, once skyrocketing over the past two years, took a hit at the beginning of the year. Fueling uncertainty was China's DeepSeek claiming they built a state-of-the-art large language model at a budget-friendly cost, potentially diminishing demand for Nvidia's graphics processing units (GPUs) essential for AI research. Accounting for over 80% of total revenue, Nvidia's data center GPU business lies at the heart of this concern.
However, the unfavorable sentiment has begun to wane in the wake of significant tech investment outlooks from Nvidia's key customers, like Amazon and Meta. Here are two reasons to purchase Nvidia stock on the dip:
Reason 1: Big Spenders in the Cloud
Cloud service providers pinpointed around half of Nvidia’s $30 billion in data center revenue in the fiscal third quarter of 2024. Among them, Amazon, a slow-paced spender, seems to be swapping gears. Capex surged to $83 billion in 2024 and is envisioned to escalate to roughly $100 billion in 2025, prioritizing tech infrastructure expenditure for cloud and AI services.
Amazon uses Nvidia's H100 GPUs for powering generative AI workloads within its Amazon Web Services (AWS). In addition, anticipating Nvidia's Blackwell computing platform, Amazon is slated to become an early adopter for the platform launch this year.
Meta, another Nvidia client, is ramping up its capital spending this year as well. After training its Llama 4 models on 100,000 Nvidia H100 GPUs, Meta plans to increase its capital expenditure to between $60 billion and $$65 billion in 2025. Meta's lofty vision of investing hundreds of billions of dollars in AI infrastructure over the long term signifies a robust commitment to GPUs and may significantly benefit Nvidia, holding an estimated 70-95% share of the AI chip market.
Reason 2: Other Growth Markets
While the gaming market faced a slump, signs of recovery are noticeable. Nvidia’s gaming segment witnessed a rise in sales of gaming GPUs, from $1.5 billion in the third quarter of fiscal 2023 to a whopping $3.2 billion in the 2025 third quarter, indicative of a substantial annual run rate.
Moreover, the company recorded record revenue in its automotive segment last quarter, encompassing sales of its Drive computing platform for autonomous vehicles. Establishing partnerships with carmakers, such as BYD and Rivian, further bolsters its position, as automotive revenue expanded from $251 million in 2023 to $449 million in 2025.
As the adoption of autonomous driving soars in the ensuing decades, this bump could blossom into a vast, multibillion-dollar opportunity. Nvidia aims to leverage its total addressable market, estimated at $1 trillion, by uncovering additional markets for its technology. At the J.P. Morgan Healthcare Conference in January, Nvidia emphasized the potential for growth in robotics and AI agents within the health services sector.
DeepSeek's low-cost large language model construction might not directly harm Nvidia in the long run. Instead, it could catalyze faster innovation in the AI realm, ensuring Nvidia continues to prosper as the AI chip market's leading supplier.
The recent dip brought Nvidia's valuation in check with a more reasonable forward price-to-earnings (P/E) multiple of 30. Consider the analysts' projections of a staggering 51% increase in the company's revenue and earnings this year, and this valuation could be much more than a bargain.
- Despite China's DeepSeek claiming a budget-friendly large language model, Nvidia's key customers like Amazon and Meta are increasing their tech investment outlooks, potentially boosting demand for Nvidia's GPUs.
- In 2024, Amazon allocated half of Nvidia's $30 billion data center revenue to cloud services and plans to invest even more in tech infrastructure, prioritizing AI services that require Nvidia's H100 GPUs.
- Meta, another Nvidia client, is ramping up its capital expenditure in 2025 and plans to use Nvidia's Blackwell computing platform, further committing to GPUs and potentially benefiting Nvidia with an estimated 70-95% share of the AI chip market.
- In 2025, Nvidia's earnings and revenue are projected to increase by 51%, given the market recovery in gaming and record sales in the automotive segment, which Nvidia aims to expand into a multibillion-dollar opportunity with robotics and AI agents in health services.
