by Jason Bodner
February 4, 2025
On Monday January 27th, China’s new AI DeepSeek caused an earthquake in AI-related stocks. We saw some of the largest single day moves in some of the strongest stocks of the past decade. NVIDIA alone now holds the dubious record of being the stock that lost the most market cap in a single day in history, losing nearly $600 billion in market capitalization, (17% of its market value) in one day.
Ouch.
The next day, Tuesday, NVDA gained $280 billion, so it’s been a wild and nerve-rattling ride.
Today, I hope to provide some insight on what I think about what is going on and what we should do next. I’m going to tell you why this is not the end of NVIDIA – and that’s not just because I own some shares.
First, the facts: DeepSeek, an AI startup in China, claimed they trained an AI model in two months at a cost of $5.6 million. This is in stark contrast to open AI, which took far longer and cost $100 million, partly because DeepSeek used inferior NVDA chips, the ones allowed to be exported to China.
The implications are clear: If DeepSeek can create comparable AI faster and at 5% the cost, then the whole game has just changed. AI-hungry models no longer need the fastest chips nor will they need as many chips, nor will they need as much time. This also implies that chips might move from a shortage to an oversupply, and that the flood of investment that has already happened and is slated to happen with the Stargate project is massive overkill – at least that’s the first reaction, which created Monday’s bloodbath.
For a deeper dive, let’s talk qualitative then quantitative analysis, first opinions, then a look at some data.
First, legitimate information out of China is often questionable. Communist China has a state-controlled media. The timing of their release is also suspicious:
- A few weeks after Nvidia CEO Jensen Huang splashed cold water on quantum computing stocks, saying the first useful quantum computers will come in 30 years, this put immense pressure on quantum computing stocks. (China’s Baidu is one of the companies racing for the QC prize).
- President Trump routinely beat up on China during his campaign, saying they are not paying their fair share to the U.S. He frequently implied that sizeable tariffs on the country would come soon.
- Trump just announced a $500 billion investment into Stargate AI to make the U.S. the clear leader.
- China relies heavily on exports to U.S. consumers. A big tariff would impact them significantly.
Is it possible that China orchestrated a PR event like this to hit America where it hurts most? Nvidia has become the most crowded trade in the world. This DeepSeek release seemed directly aimed at them.
For a little comparison to Nvidia’s CEO Jensen Huang, DeepSeek’s founder, Liang Wenfeng, studied machine vision and machine learning. In 2015, aged 30, he launched a quantitative hedge fund called High-Flyer. It was hugely successful. Then he wanted to build human level AI. So, in 2021 he bought 10,000 H800 chips and told his smartest engineers to get the maximum output from the NVIDIA chips possible. Employing dozens of PhDs from top China universities, he built an AI competitor.
You should know something about Chinese stocks: It is illegal to short shares in China. That’s not the case in America. Short sellers abound, borrowing and selling shares they don’t own to hopefully buy them back lower. Could a brilliant computer-savvy hedge fund winner orchestrate a short trade of U.S. tech shares with a PR stunt? I think he could, but not without the help and blessing of the Chinese government.
That’s admittedly just speculation, so let’s get to the data. I believe in data. On January 27th, QQQ (the NASDAQ tracking ETF) fell almost 3% in one day. That level of ugly action is infrequent. In fact, since 2005 there were 120 prior instances the same or worse. The forward results were shocking:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Those are very impressive returns, especially after two years. Now, let’s look at Nvidia, one of the great growth stories of all time. Nvidia’s growth was solidified long before AI euphoria began, simply by making the best chips in the world. Their GPUs are the strongest, fastest and most efficient on the market.
This is evident in historic sales and earnings growth of over 150% annually in the latest reporting period.
Nvidia’s historic explosive share price growth wasn’t rooted in headlines. It happened due to growing sales, earnings, and profits. Nvidia’s earnings call on February 26th will be fascinating. I predict another earnings beat and revenue beat, but forward-looking statements will be most important. Many contracts were signed to procure their best-in-breed chips, creating a backlog of orders and a current under-supply.
It is possible that China’s DeepSeek will radically disrupt the industry, but it still seems questionable. For now, Nvidia continues to be the “best in show.” Personally, I wouldn’t bet against Nvidia.
What ultimately makes sense is analyzing all the data and seeking trends we can profit from. Looking at the data, we see the market didn’t really care about this latest shock. First look at the BMI – still rising:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This is because, despite the volatility, unbelievably there wasn’t an uptick of unusual selling:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
We see the same at a sector level. Even technology didn’t flash red:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
In fact, Monday’s volatile storm didn’t register selling of any kind in any of the 11 S&P sectors!
When the NASDAQ falls like it did last Monday, forward returns are outstanding for the past 20 years. The biggest, baddest chip maker in the world has an outstanding history of sales and earnings growth. I expect both of those long-term leadership roles to continue.
My advice is to follow data and separate fact from fiction. This will yield better long-term investment results and less heartache and heartburn. It is important to differentiate opinion from fact.
“Every man has a right to his opinion, but no man has a right to be wrong in his facts.” – Bernard Baruch
Navellier & Associates owns Nvidia Corp (NVDA), in managed accounts. Jason Bodner owns Nvidia Corp (NVDA), in a personal account.
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
A Deeper Dive into DeepSeek and Nvidia
Income Mail by Bryan Perry
A Major Campaign Promise Kept – Now What?
Growth Mail by Gary Alexander
Is a Monopoly Always Bad? How Can We Tell?
Global Mail by Ivan Martchev
The Cycle of Tariff Recriminations Has Started
Sector Spotlight by Jason Bodner
What Should Investors Do with Nvidia Now?
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Jason Bodner
MARKETMAIL EDITOR FOR SECTOR SPOTLIGHT
Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner
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