We recently published a list of 10 AI Stocks to Watch Amid DeepSeek Impact. In this article, we are going to take a look at where Nvidia Corp (NASDAQ:NVDA) stands against other AI stocks to watch amid DeepSeek impact.
The launch of DeepSeek is drawing new battle lines in the AI competition and many analysts believe the technology investment landscape won’t be the same again after the Chinese breakthrough. Talking to CNBC, Databricks CEO Ali Ghodsi said that DeepSeek would result in “distillation” where companies will make smaller, more efficient models based on the technology:
“So we’re going to just see distillation happening left and right. It’s already happening—like, there’s so many versions of DeepSeek that have been reproduced and redone just in the last week as we speak. So this distillation is going to just create so much competition at the LLM or the AI layer.”
In the coming days, it would be interesting to see how American AI companies tackle this challenge and come up with new products or breakthroughs to maintain their dominance.
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For this article, we picked 10 AI stocks that are trending on the back of latest news. With each stock we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Nvidia Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 193
Dan Niles, Niles Investment Management founder, said in a latest program on CNBC that he believes Nvidia Corp (NASDAQ:NVDA) will see a slowdown in chip demand, especially from major spenders like Microsoft. This would, according to Niles, impact Nvidia Corp (NASDAQ:NVDA)’s revenue growth rates:
“I don’t think there’s any chance that Nvidia, and I’ve said this before, does revenue up 50% this year because, whether it’s Microsoft cutting back on capex, don’t forget they said they’re going to spend 80 billion this fiscal year. Well, if you do the math, they spent 20 billion in September. They said that’s up in December, their fiscal year ends in June, which means the first half of 2025 capex spending is down from the back half of 2024. It’s been growing at 70 to 80% for a year and a half, and that’s a very big change when the largest spender on AI is going from growing 70 to 80% to not growing at all.”
Simply beating earnings estimates is not enough for NVIDIA Corporation (NASDAQ:NVDA) anymore, and the impact of high expectations will continue to weigh on the stock as growth cools.
Nvidia’s forward P/E ratio for the fiscal year ending January 2026 is around 31. An EPS surprise of 8.5% was not able to help the stock. A similar trend occurred following the second-quarter earnings after a 5.6% EPS surprise. It’s difficult to see Nvidia maintaining a mid-70s gross margin by the end of 2026. Over the last two quarters, Nvidia has already reported a drop in its gross margin from 78% to 74.5%.
Then there’s competition. Amazon (AMZN) recently disclosed its Trainium 3 chip, which is set to be released by the end of 2025. The chip is expected to be twice as fast with 40% more power efficiency than the previous generation, manufactured on TSMC’s (TSM) cutting-edge N3 technology.
Infuse Asset Management stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q4 2024 investor letter:
“We do still own some NVIDIA Corporation (NASDAQ:NVDA) as the forward multiple isn’t egregious and it powers over 90% of AI workloads. This company is only becoming increasingly important though the hyperscalers are actively trying to save money through their own ASIC programs. The moat CUDA provides has been underestimated time and time again. While I don’t think Nvidia has quite the upside as some of the other companies in the portfolio, it has a product that the best companies in the world literally can’t get enough of.”
Overall, NVDA ranks 2nd on our list of AI stocks to watch amid DeepSeek impact. While we acknowledge the potential of NVDA, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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