Nvidia's Stock Decline and Future Predictions

Nvidia stock has recently seen a significant drop, and historical trends provide insight into its potential trajectory for 2025.

In recent days, the financial community has been shaken by the emergence of a new player in the artificial intelligence (AI) sector. The Chinese company DeepSeek has created a model similar to ChatGPT, causing a stir across the industry.

Investors are particularly anxious because DeepSeek has claimed that its model was trained on older and less advanced chips from Nvidia. These claims have raised doubts among investors about the value of Nvidia's newer chip architecture.

This situation has triggered a lengthy decline in Nvidia's stock price. This raises a key question: Is this a good moment to buy, or is Nvidia stock likely to continue falling?

In this article, I will examine some intriguing trends regarding Nvidia's stock and discuss the possible paths ahead.

Recent Movements in Nvidia Stock

The chart below displays the multiple sell-offs of Nvidia stock following the news concerning DeepSeek. While these declines are alarming at first glance, there are deeper factors at play.

Whenever a stock’s price fluctuates, the overall valuation of the company is affected. For Nvidia, the recent drop in share price has led to a staggering loss of around $600 billion in market capitalization.

At first sight, this situation appears disastrous. However, as often happens in markets influenced by strong emotions, the full story is more nuanced.

With the decrease in Nvidia's market cap, its valuation multiples have also dropped. As of January 29, the forward price to earnings (P/E) multiple for Nvidia stands at 30.1.

In the following sections, I will delve into the significance of this drop in valuation multiples and what history indicates may happen next.

Historical Insights on Nvidia's Stock

The table below summarizes Nvidia’s forward P/E ratios at the end of each quarter over the past year.

Category	10/31/2023	1/31/2024	4/30/2024	7/31/2024	10/31/2024	Current
Forward Price to Earnings (P/E)	24.5	30.4	35.7	44.6	33.9	30.1

According to data from Yahoo! Finance, Nvidia's forward P/E ratio was last around 30 back in January 2024, when its market cap stood at approximately $1.5 trillion—about half of its current value.

The similarity in the forward P/E now compared to a year ago might suggest that Nvidia’s stock could rise again, similar to the trends observed in 2024. However, there are important nuances that must be considered.

Understanding the Current Market Dynamics

Since Nvidia's current forward P/E is comparable to last year's, despite the company’s market value having doubled, analysts on Wall Street may be anticipating that Nvidia’s earnings will also double.

This scenario indicates that should Nvidia’s market capitalization increase without a proportional rise in earnings, the forward P/E would typically expand, known as valuation expansion.

However, the narrative surrounding DeepSeek brings the future demand for AI infrastructure into question—particularly for graphics processing units (GPUs), which are crucial to Nvidia.

I wouldn't be shocked to see analysts begin to adjust their revenue and earnings estimations for Nvidia downward in the wake of this development. Such adjustments do not necessarily mean that Nvidia is overvalued, but the market may need to reassess its expectations based on the implications of the DeepSeek news.

In broader terms, I believe Nvidia will maintain its leadership position in the AI field, and its GPUs will continue to be essential in the ongoing development of technology. The extent of that importance, however, remains uncertain.

While historical patterns may point to a potential doubling of Nvidia's stock value this year, I advise caution. In the long run, there is still substantial value to be gained from investing in Nvidia. Yet, it seems unlikely that shares will double again in 2025.

Disclaimer: The author has positions in Nvidia. The information provided here is for informational purposes only and should not be considered investment advice.

Nvidia, Stock, AI