Nvidia is experiencing a challenging start to the year, with its shares declining 1%, lagging behind major US indices that have posted gains. The company’s stock has underperformed the S&P 500 by over 5% in the past month.
The financial community is closely watching Nvidia as it approaches its upcoming earnings report, scheduled for February 26. Analysts have been actively discussing the stock’s recent performance with clients, providing varied explanations for its recent weakness. Three primary concerns are prevalent, according to Mark Lipacis, an analyst at Evercore ISI. These include a decrease in AI demand, a shift in AI compute cycles from Nvidia GPUs to custom ASICs, and delays in the release of Nvidia’s Blackwell chip. Despite these issues, Lipacis maintains a positive outlook on Nvidia, continuing to recommend purchasing its stock, and upholding an ‘Outperform’ rating with a $190 price target.
Nvidia’s position as a leader in AI technology is being tested by new players in the field. One significant development has been China-based DeepSeek’s introduction of RI, an AI model that rivals ChatGPT in performance but at a considerably lower cost, only $5.6 million to establish a base model. This has caused some to worry about overspending by US companies on AI infrastructure, including Nvidia. These concerns are echoed by Sridhar Ramaswamy, CEO of Snowflake, who highlighted the shift in conventional thinking about AI model development costs during a recent podcast.
Competition in the AI chip market is intensifying as more technology giants make strategic moves. Amazon has forged an $8 billion partnership with Anthropic to venture into AI chips, while Google has launched a supercomputer featuring its AI chip, Willow. Concurrently, companies like Broadcom and Marvell have introduced advanced custom chips, aiming to capture a share of Nvidia’s market dominance.
Despite the challenges, several analysts remain optimistic about Nvidia’s future. Bank of America’s Vivek Arya has reaffirmed Nvidia as a top pick for 2025, setting a price target of $190, which represents a potential 57% gain from current levels. Arya believes the upcoming earnings report could shift investor sentiment positively, with expectations for strong fiscal growth in data center sales and exciting product developments at Nvidia’s GTC Conference in March.
Market analysts note that Nvidia’s financial projections have yet to fully reflect these sectorial challenges. Yahoo Finance data indicates several upward revisions in Nvidia’s earnings and EPS estimates for 2025 and 2026, showing a persistent belief in the company’s resilience and growth potential.
While Nvidia faces headwinds from market competition and technological shifts, the company continues to hold a significant position in the AI industry. Analysts advocate for investor confidence, citing upcoming product releases and strategic strengths as factors that could enhance Nvidia’s market position in the near future.
