Can Nvidia survive reduced AI costs?

Nvidia’s share price plummeted in the aftermath of DeepSeek’s appearance.

It has rallied since, but the stock, which has gained almost 480% over the past two years, has flatlined so far in 2025.

That stutter could be unwarranted. It’s based on an assumption among investors that reduced compute requirements for the top-performing AI models means less demand for chips, but that doesn’t necessarily follow.

“For Nvidia there’s an argument that even if the cost of compute comes down rapidly, it just means more companies will have access and the ability to create AI products and the overall aggregate demand for Nvidia’s product can actually still grow in that environment,” says Matt Britzman, senior equity analyst, Hargreaves Lansdown. “In economics it’s known as the Jevons Paradox.

“I think it is also important to look at the sentiment on the field, when we take Meta, Microsoft and now Alphabet everyone is still pushing capex higher – there’s a slim chance they all have it wrong, but I don’t think we’re at a stage yet where compute buildout is going to materially dip.”

Why has Scottish Mortgage sold Nvidia shares?

Scottish Mortgage Investment Trust (LON:SMT) reduced its exposure to Nvidia back in November.

Answering questions on the decision last week, Lawrence Burns, investment manager at Baillie Gifford (the trust’s manager), explained in a webinar that Scottish Mortgage has already banked a £1.5 billion profit on its initial investment of just £64 million, thanks to Nvidia’s outsized share price gains, and its remaining stake is still worth £500 million.

He also mentioned that AI companies have highlighted a shift from raw compute driving improved AI performance, “towards more algorithmic changes.

“We thought that would have an impact potentially on the level of demand over the very long run,” he said. Linked to this is a shift in focus among AI developers from training to inference; Nvidia’s competitive advantage is massively in the former, and less so in the latter.

What does China’s AI boom mean for Nvidia?

Nvidia’s shares nosedived in the wake of DeepSeek’s appearance on the AI scene.

The start-up’s emergence, though, has been a boon to Chinese tech stocks, which have been down in the dumps for several years.

The Year of the Snake looks like it could hold the antidote for the sector’s malaise. The Hang Seng Tech Index, which is composed of Hong Kong’s 30 largest tech companies, has gained nearly 33% in the year to date (that is, since the start of January).

“Investors are re-evaluating the tech gap between China and the US,” says Lale Akoner, global market analyst at investment platform eToro. “China’s AI breakthroughs, particularly DeepSeek’s advancements, are attracting global interest in its AI and semiconductor sectors.”

Akoner goes on to say that US export controls on Nvidia’s most high-tech chips – controls that Nvidia has consistently criticised – has pushed China to develop its own domestic alternatives.

“Companies like Huawei (Ascend), Alibaba (T-Head) and SMIC are aggressively working to fill this gap, she says. “Stronger government backing for private businesses is also boosting sentiment, as Beijing’s September policy pivot reduced downside risks and President Xi Jinping is actively engaging with leaders from Alibaba, Tencent, and BYD.

Blackwell key for Nvidia

Investors will be looking especially keenly at how the rollout of Nvidia’s latest chip generation, Blackwell, is coming along.

“The rollout of its latest Blackwell chips will take centre stage where supply constraints held things back a touch in the prior quarter,” says Matt Britzman, senior equity analyst, Hargreaves Lansdown.

Related to this will be the margins on Blackwell. With Nvidia shares currently priced for perfection, profits as well as sales need to be strong on its next-generation chips if investors are to maintain their confidence.

“Margins will also be under the spotlight. Costs tied to Blackwell’s ramp-up could put some pressure on gross margins, with any dip below the guided 73.5% mark likely to ruffle a few feathers,” says Britzman.

Nvidia earnings expectations

We know that Nvidia is swimming upstream in the run-up to its earnings release, and that the markets are likely to be jumpy given the threats that are appearing to its dominance of the AI market.

The reporting period in question, though, predates the emergence of DeepSeek, so it’s worth taking stock of the kind of numbers analysts are looking for, before getting too carried away with the future implications for Nvidia.

Here’s a summary of what two polls of Wall Street analysts yield in terms of consensus revenue and earnings expectations for Nvidia:

These numbers, if accurate, imply a year-on-year increase of 61.5% for Nvidia’s quarterly earnings and revenue growth of slightly approximately 72%.

Big tech spending raises pressure on Nvidia

Increased competition has piled the pressure on Nvidia ahead of its earnings release. Investors have come to expect big things from the semiconductor giant, and if the rest of big tech earnings season so far is anything to go by, then the pressure will be on the company to post positive outlook numbers despite the DeepSeek uncertainty.

The challenge is that Nvidia’s biggest customers – the so-called cloud ‘hypscalers’ like Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) – have outlined robust spending plans despite DeepSeek seeming to suggest that AI can be done cheaper.

“Recent signals, including massive investment plans from the big tech giants, suggest Nvidia’s cutting-edge chips remain in hot demand,” says Matt Britzman, senior equity analyst, Hargreaves Lansdown.

Other semiconductor companies, such as Arm (NASDAQ:ARM) and Qualcomm (NASDAQ:QCOM) whose guidance has underwhelmed so far this earnings season have been punished by the market despite beating expectations on headline figures.

More competition for Nvidia

DeepSeek isn’t the only disruptive threat looming over Nvidia’s earnings release.

Last week, MoneyWeek’s sister site Tech Radar reported that SambaNova Systems, an AI startup founded by former Sun/Oracle employees, claims to have achieved the fastest deployment of the DeepSeek-R1 large language model (LLM) to date.

SambaNova claims to have reduced the hardware requirement to achieve 198 tokens per second per user (a measure of LLM efficiency) from 40 racks of 320 Nvidia GPUs to just 16 custom-built chips.

SambaNova is the fastest platform running DeepSeek,” said Rodrigo Liang, CEO and co-founder of SambaNova. “This will increase to 5X faster than the latest GPU speed on a single rack – and by year-end, we will offer 100X capacity for DeepSeek-R1.”

What is DeepSeek, and why does it matter for Nvidia’s earnings?

One of the key topics that Nvidia (NASDAQ:NVDA) CEO Jensen Huang is likely to address when he speaks to investors and analysts on Wednesday is DeepSeek, the Chinese AI start-up that has turned stock market assumptions about AI on its head.

In brief, DeepSeek released a large language model whose performance matches or exceeds that of ChatGPT – at a fraction of the training cost and, crucially for Nvidia, compute requirements.

Nvidia’s market cap fell $600 billion in a single day following what Silicon Valley venture capitalist Marc Andreessen called AI’s “Sputnik moment”; the biggest single-day loss in stock market history.

So, not only is Nvidia going to need to post strong results for the quarter that ended in December. It will also need to reassure markets that its business can withstand a disruption to the massive chip demand that, it had been assumed, will accompany AI adoption over the long term.

When does Nvidia announce earnings?

Nvidia’s earnings are scheduled to be announced on Wednesday 26 February, after markets close in the US.

US markets close at 4pm Eastern time zone (ET), so 9pm in the UK. It is hosting a conference call to discuss the results at 5pm ET – 10pm UK.

Normally, all we’d be able to say is that the results will be published at some time during that hour channel. Nvidia has however confirmed it will happen at approximately 1.20 pm Pacific time zone: 5.20pm ET / 9.20pm in the UK.

Good morning, and welcome to MoneyWeek’s live blog covering Nvidia’s earnings.

The big release is two days away, but we’re bringing all the analysis and updates ahead of time, as there’s plenty for investors to wrap their heads around before Nvidia’s earnings announcement.

Keep checking in for the latest analysis, predictions and reactions from what has become the stock market’s marquee quarterly event.