Recently, $NVIDIA (NVDA.US)$ The stock price has fluctuated violently. Recently, due to the negative impact of the Deepseek incident, the stock price suffered a significant drop and continued to oscillate downwards for a period of time. Last week, NVIDIA's stock price showed a strong rebound; as of yesterday, NVIDIA has achieved an increase for five consecutive trading days, with a cumulative increase of over 14%.

It is noteworthy that on February 26, after the US stock market closes, NVIDIA's highly anticipated latest quarterly earnings report will be released, allowing investors to assess the current situation and future prospects of the company.

Will the 'Jevons Paradox' and DeepSeek boost demand for NVIDIA's products?

So far this year, NVIDIA's stock price has slightly decreased by 0.54%, while$S&P 500 Index (.SPX.US)$during the same period, it has increased by over 3%. The fluctuation of NVIDIA's stock price is influenced by multiple factors, with the launch of DeepSeek being a key factor. The launch of DeepSeek raised concerns in the market regarding GPU manufacturers like NVIDIA, causing NVIDIA's stock price to plummet by 17% on January 27.

However, in the face of the impact from DeepSeek, Microsoft CEO Satya Nadella posted on Social Media, referencing the concept of the 'Jevons Paradox.' This paradox, proposed by British economist William Stanley Jevons in 1865, asserts that as the efficiency of resource usage improves, the demand for that resource may actually increase. Nadella pointed out that as AI becomes more efficient and user-friendly, its usage will surge, becoming a 'perpetually insatiable Commodity.'

This paradox may also apply to the AI computing power market. Technological advancements have created more application scenarios, thus driving the growth in demand for computing power. According to research conducted by Institutions, although many companies are trialing DeepSeek, they have not immediately abandoned their existing AI solutions, but have opted to use both concurrently. As testing and applying new technologies require time and resources, more small and medium-sized enterprises are beginning to try installing DeepSeek, thereby increasing the demand for NVIDIA GPUs.

Analysts from multiple investment banks, including Cantor Fitzgerald, have applied this theory to the DeepSeek-R1 model. In an investment report, Cantor Fitzgerald specifically stated, 'We believe that the notion of GPU spending reaching its peak is far from reality. In fact, DeepSeek is extremely beneficial for both the computing field and NVIDIA, as the realization of Artificial General Intelligence (AGI) seems increasingly imminent, and the Jevons Paradox will almost certainly drive an increase in the AI industry’s demand for computing resources rather than a decrease.'

Evercore ISI analyst Mark Lipacis also dismissed Wall Street's concerns regarding NVIDIA's stocks, believing that the case of DeepSeek indicates that large language models are 'in a rapid development phase,' which is a positive signal for NVIDIA, as the company has a 'flexible and programmable platform.' NVIDIA's chips possess both training capability and reasoning capability, and in the current context where reasoning tasks are becoming increasingly important, experts predict that NVIDIA will become one of the most effective participants.

James Ooi, the market strategist at online broker Tiger Brokers, also noted in a report that despite NVIDIA's stock price initially suffering a significant hit, the success of DeepSeek may further stimulate demand for NVIDIA products.

Technology giants continue to 'burn money,' providing strong support for computing power companies like NVIDIA.

Against the backdrop of the AI wave sweeping the globe, the capital expenditure of technology giants is expanding on an unprecedented scale. During this earnings season, six out of the 'Magnificent 7' in the USA have consecutively released their Earnings Reports, among which, $Microsoft (MSFT.US)$ 、 $Amazon (AMZN.US)$ 、 $Alphabet-C (GOOG.US)$ / $Alphabet-A (GOOGL.US)$ and $Meta Platforms (META.US)$ The total capital expenditure for 2024 is approximately 230 billion USD.

However, the technology giants show no signs of cooling in their investment in AI, with Microsoft, Amazon, Google, and Meta all indicating that after last year's record spending, they will further increase investments in 2025, expected to invest a total of 320 billion USD in AI technology and Datacenter construction.

Among them, Google announced that its capital expenditures will reach 75 billion USD in 2025, far exceeding expectations; Amazon's scale is even more astonishing, with annual investments possibly reaching 105 billion USD; Meta plans to invest 65 billion USD in AI infrastructure construction; and Microsoft's investment plan is approximately 80 billion USD.

Morgan Stanley's global quantitative research head, Vishwanath Tirupattur, believes that despite the significant breakthroughs from DeepSeek, it will not lead to a collapse in capital expenditures from major players with substantial influence in AI and related fields.

He mentioned that the sharp decline in computing costs in the 1990s provided a useful reference for this. At that time, the investment boom was mainly driven by two factors: the speed at which companies replaced depreciated capital and the continuous significant decline in the price of computing capital relative to the output price. If the efficiency gains brought by DeepSeek reflect a similar phenomenon, then the capital cost of AI may decrease, supporting the spending outlook of enterprises.

The continued rise in spending by technology giants undoubtedly provides strong support for computing companies like NVIDIA.

Amazon CEO Andy Jassy pointed out in a conference call that most of the AI computing of companies relies on NVIDIA's chips, and in the foreseeable future, Amazon will continue to maintain its partnership with NVIDIA.

Bank of America analyst Vivek Arya noted that although the emergence of competitors like DeepSeek has raised market concerns, the spending intentions of NVIDIA's major customers (including Microsoft and Meta) have not been affected. Neither Meta nor Microsoft retracted their capital expenditure plans in recent earnings reports, indicating that NVIDIA's sales will continue to grow strongly.

Bank of America remains optimistic about NVIDIA's long-term growth prospects, believing that its continued innovation and market leadership in AI and Datacenter will drive future performance growth. Analysts expect NVIDIA to focus on executing its Blackwell products and anticipate that datacenter sales will grow more than 60% year-on-year for fiscal year 2026 and the full year of 2025.

Additionally, on January 21, 2025, President Trump announced the establishment of the "Stargate" project with OpenAI, SoftBank, and $Oracle (ORCL.US)$The "Stargate" project has been established, with an expected investment of at least 500 billion dollars in AI infrastructure over the next four years. Currently, 100 billion dollars will be invested immediately, and Arm Holdings, Microsoft, NVIDIA, Oracle, and OpenAI will be the initial technology partners. Institutions believe that the global investment climate in AI infrastructure remains strong, and in the short term, large-scale capital investments represented by Stargate are expected to provide strong support for the overseas computing power industry chain.

The latest news from Super Micro Computer alleviates market concerns regarding NVIDIA's supply chain constraints.

It is also worth noting that NVIDIA's important partner $Super Micro Computer (SMCI.US)$ announced the latest news last Wednesday (February 5), easing market concerns about NVIDIA's supply chain constraints.

Super Micro Computer announced that its new AI datacenter system, equipped with NVIDIA's advanced Blackwell chip, is now ready for shipment. Super Micro Computer stated that its new product has reached "full production availability" status. This product essentially serves as the core infrastructure required by AI datacenter developers to run Blackwell chips at scale.

As a result of the above news, NVIDIA's stock price surged over 5% on the same day; Super Micro Computer saw its shares rise more than 13% at one point, closing with nearly an 8% gain, accumulating nearly 60% over five consecutive trading days. The latest quarterly earnings report will be released after market close today.

NVIDIA has also admitted that its more advanced AI chips are facing challenges at the supply chain level, needing to further expand the supply chain to meet the growing market demand for Blackwell chips. Currently, market demand continues to soar, surpassing NVIDIA's supply capacity. NVIDIA pointed out that due to the need for a large number of customized components in its products, the process of scaling up the supply chain is extremely complex.

NVIDIA CEO Jensen Huang stated during an analyst conference call in November last year that "almost every company in the world seems to be involved in our supply chain now." He specifically mentioned partners such as Super Micro Computer, SK Hynix, $Taiwan Semiconductor (TSM.US)$Fujikang, stating that these companies are helping NVIDIA enhance its supply chain capabilities.

UBS Group analysts indicated that revenue expectations for the Blackwell chip have already "turned upward," while NVIDIA's product portfolio is shifting from Hopper to the newer Blackwell.

Morgan Stanley North America Analyst Joseph Moore pointed out that the visibility of supply for NVIDIA's Blackwell chip is continuously improving, and customer consumption willingness is also very evident. Although we are still in a transitional phase, analysts' confidence in Hopper and Blackwell chips continues to strengthen. Regarding the Blackwell chip, analysts are closely monitoring NVIDIA's information about its "unprecedented complexity" and believe these issues are being rapidly resolved, including the final form of the GB200. Although there are still some limitations, confidence is increasing.

Divergence in the outlook has prompted several Institutions to support NVIDIA.

Overall, although NVIDIA may experience some fluctuations in the short term, the demand for computing power will continue to grow with the ongoing advancements in AI technology. However, the uncertainties facing NVIDIA are also gradually increasing.

As the USA tech giants are firmly investing heavily in the AI sector, the biggest winners may be the two major AI ASIC giants - $Broadcom (AVGO.US)$ with $Marvell Technology (MRVL.US)$ , rather than the "AI chip giant" NVIDIA. With its technological leadership in inter-chip communication and high-speed data transmission between chips, Broadcom and Marvell Technology have become the core forces in the AI ASIC market.

Tech giants like Microsoft, Amazon, Alphabet, and Meta Platforms are teaming up with Broadcom or Marvell Technology to develop their own AI ASIC chips for massive deployment of AI computing power at the inference end.

Furthermore, according to Reuters, OpenAI is advancing its plan to reduce reliance on NVIDIA by developing its first-generation internal AI Chip, opening a new chapter for its chip supply. Sources say that the developer of ChatGPT will complete the design of its first internal chip in the coming months and plans to send it to Taiwan Semiconductor for manufacturing. The latest news suggests that OpenAI is expected to achieve its mass production goal at Taiwan Semiconductor by 2026.

Regarding NVIDIA's prospects, Analysts at Morgan Stanley have also diverged: analysts in Greater China have lowered their shipment expectations for the GB200 chip this year, predicting that in the worst case, it will fall below 0.02 million units, and expect the growth cycle of the Cloud Computing market may peak this year, with year-on-year growth potentially dropping to single digits in the fourth quarter of 2024.

Meanwhile, analysts in North America at Morgan Stanley reaffirmed that NVIDIA remains their top pick, declaring that the sell-off triggered by DeepSeek is an opportunity to buy the dip. Analysts believe that despite some potential risks facing NVIDIA, its short-term business remains strong, particularly as the supply visibility and customer demand for the Blackwell chip are increasing. They emphasized four supporting factors:

• 1. Currently still in a transitional environment, but confidence in Hopper and Blackwell chips is continuously increasing;

• 2. Although investor sentiment towards large training clusters is under pressure, there are signs that large clusters are still being built;

• 3. The inference market is expected to drive NVIDIA's growth for years, and NVIDIA's position in the inference field is solid;

• 4. They expect a reversal in the market's preference for GPUs in the second half of the year, with revenue from GPUs accelerating growth.

Analyst Vivek Arya from Bank of America stated that NVIDIA is his top stock pick for 2025. In a report to clients, Arya mentioned that investor sentiment may increase after the Earnings Reports conference call because:

• 1. NVIDIA is expected to reaffirm the performance of Blackwell;

• 2. Confidence in fiscal year 2026/calendar year 2025 is maintained, with datacenter sales expected to grow by over 60% year-on-year (this is still below Taiwan Semiconductor's expectation of over 100% year-on-year growth in the AI field for 2025);

• 3. Creating excitement in advance for the flagship GTC event on March 17 (focusing on physical AI projects such as GB300, Rubin and robots).

Additionally, analysts at Evercore suggest buying NVIDIA ahead of the company's earnings reports, expecting NVIDIA to deliver 'positive earnings reports and outlook', giving the stock a 'tactical outperform' rating.

UBS expects NVIDIA to perform strongly in the quarter ending in January and the outlook for the quarter ending in April; for the quarter ending in January, NVIDIA’s total revenue for Blackwell is expected to reach $9 billion. UBS maintains a target price of $185 for NVIDIA and gives it a Buy rating.

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编辑/jayden

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