NVIDIA Stock Faces a Downturn: What’s Next for Investors?

NVIDIA Stock Declines Amid Market Uncertainty

NVIDIA (NASDAQ: NVDA) has seen its stock price fall significantly, dropping over 16% during the week of January 30. Investors are now questioning what will be needed to halt this downward momentum.

The primary cause of the recent dip is speculation that the Trump administration may impose new export restrictions on NVIDIA’s chips to China. This move follows reports that China has developed DeepSeek, an open-source large language model (LLM), for just $6 million.

To put this into perspective, Meta Platforms (NASDAQ: META) recently revealed plans to invest $65 billion in upgrading its AI infrastructure in 2025. Given that the AI sector is still in a growth phase, a substantial portion of this investment will likely be spent on hardware, including GPUs from NVIDIA.

Investor Reaction: Profit-Taking or Market Panic?

The stock’s decline can be attributed to a widespread sell-off, with some speculating that companies will reduce AI infrastructure spending and shift towards more cost-effective open-source models.

However, several factors challenge this narrative. Since its launch, DeepSeek has faced criticism for its inherent limitations and biases. Additionally, there is strong speculation that the Chinese LLM was built using NVIDIA’s GPUs.

If DeepSeek truly threatened NVIDIA’s market position, NVDA stock would likely have maintained its rally. Instead, the more probable explanation is that investors saw an opportunity to capitalize on profits, given NVIDIA’s already high valuation. In times of uncertainty, strategic profit-taking is a common market behavior.

Currently, NVIDIA trades at over 44x forward earnings and holds a price-to-sales ratio above 49x. Despite this pullback, investors continue to pay a premium for its shares.

Why NVIDIA’s GPUs Remain a Critical Asset

Despite market turbulence, NVIDIA continues to justify its premium valuation. The company recently unveiled its Blackwell chip and is experiencing excessive demand, even while operating at full capacity.

Some critics argue that the rise of low-cost LLMs will eventually curb demand for NVIDIA’s GPUs. However, industry leaders such as Palantir Technologies (NASDAQ: PLTR) CEO Alex Karp have emphasized the importance of proprietary AI models, which drive innovation rather than merely maintaining existing capabilities.

As businesses invest in next-generation AI models, the demand for advanced hardware remains strong. NVIDIA continues to lead this space, reinforcing its dominance in the AI sector.

Analyst Support Amidst Market Volatility

Despite NVIDIA’s stock being under pressure, analysts remain optimistic. Notably, Cantor Fitzgerald and Morgan Stanley have reiterated their Overweight ratings on NVDA, dismissing concerns over DeepSeek’s impact.

Additionally, Tigress Financial recently upgraded NVIDIA’s rating from Buy to Strong Buy and raised its price target from $170 to $220. These endorsements highlight continued confidence in NVIDIA’s long-term growth prospects.

Technical Indicators Suggest Choppy Trading Ahead

From a technical analysis perspective, NVDA stock recently dipped below its 200-day simple moving average (SMA), a bearish signal indicating potential long-term downward movement.

The stock initially dropped below the 200-day SMA on January 24 but quickly rebounded the following week. However, its latest decline has occurred on lower trading volume, suggesting weaker conviction among sellers. Meanwhile, the Relative Strength Index (RSI) has entered the oversold range at approximately 38, which could indicate a potential rebound.

Should NVDA’s price continue declining, the next key support level lies near its September 2024 low of around $103. This scenario remains speculative, but investors should prepare for increased volatility leading up to the company’s February earnings report.

Retail Investors May Seize the Opportunity

Institutional investors are likely to adopt a cautious stance until NVIDIA releases its next earnings report. However, this uncertainty could present an opportunity for retail investors looking to capitalize on a potential rebound.

As the AI industry continues evolving, NVIDIA remains at the forefront of innovation. While short-term fluctuations may persist, long-term demand for its GPUs remains strong. Investors who focus on NVIDIA’s fundamentals rather than market noise may find this dip to be a compelling buying opportunity.

Disclaimer: This article is written for informational purposes only. It is not intended to encourage the purchase of assets in any way, nor does it constitute a solicitation, offer, recommendation or suggestion to invest. I would like to remind you that all assets are evaluated from multiple perspectives and are highly risky, so any investment decision and the associated risk belongs to the investor. We also do not provide any investment advisory services.