BY MARK SEBASTIAN
January 31, 2025
DeepSeek has blown up every thesis about the AI investment spend…one of the clear winners of the AI investment fury was NVDA…it grew up until Monday to be the largest company in the world…can it take that rain back in the midst of this huge news….lets break it down…
Let’s break it down.
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The fundamentals on a 3 trillion dollar company like NVDA should typically NOT entail a 50 PE.
However, the market has allowed this because there is belief that demand for GPU cheaps might be limitless.
AI is the next big thing…and in order for AI to work and get smarter…GPU’s are a must.
That STILL may be the case.
However, the news out DeepSeek using older chips and less power is a potential game changer….
If this breakthrough is real there will still be real demand for Nvidia’s chips…theyll be needed for well..gaming…their original use…crypto mining…and on a smaller scale…AI.
If this ends up being the case the long term growth for NVDA completely changes and that 50 PE needs to drop to 20…
It could do it with time…just sitting there for a very long time…or the company could see a 50% hair cut.
The truth is…we are still parsing this out…NVDA is a trade not an investment right now.
American AI tech companies were blindsided on Monday after China introduced their AI DeepSeek which only cost six million dollars.
This is just after our president along, with a few of those CEOs, stood in front of us to dedicate 500 billion – with – a – B – dollars into AI technology.
Now I know that is just a small part of this story, what we are interested in is where Nvidia (Ticker: NVDA) going from here:
This stock follows my pitchfork very well.
As you can see, the last time it traded down to the bottom of my pitchfork on August 5th, the stock immediately bounced and traded to the top of the third channel.
As long as the stock holds this support and clears $129, this could possibly happen again which would take it up to $165 in the spring.
Directly above here, resistance is at $132, $142- $144 and then $153.
Support sits at $114.80, $102.55 and then $92.
Be prepared for more fireworks with their earnings announcement on February 26th.
NVCA volatility goes off the hook
There is nothing like a $4 Trillion market cap company dropping almost 20% in one day. That really gets the heart pumping. NVDA juice has blown so high that we have not seen the likes in 3 months. Note below the red line is 30 day implied volatility. Kind of like the VIX for Nvidia.
The blue line is realized volatility and that is at a 1 year high.
NVDA 30 day IV and 20 day realized volatility for the last 3 months
That could set up some interesting trades buying the earnings term and selling the pre-earnings term. Opportunities don’t come like this every day and you can only take advantage of it if you have the capital to do so.
This is a great opportunity, but I would still lean the calendars a little short. We will hit this on Monday.
-AG
This is the moment that NVDA owners have dreaded. The moment where the narrative has shifted, perhaps durably. Years of being the poster child for AI, the chief picks and shovels maker, NVDA has been a stock held high above all others for its tight grip on all those who have had no choice but to keep ordering their stuff to keep up with the AI Joneses.
Capital expenditure on AI has, until now, been almost limitless. A day of reckoning has come as the dawn of cheaper AI-for-all is upon us. Better, faster, and at a purported fraction of the cost… Bullish for everyone else as cheaper AI for everyone will ultimately be a boon for most industries. But what about for NVDA, a stock that ran up 850% over just 2023 and 2024. Does it mean that NVDA is expensive on a valuation basis? Not overly. Does it mean that companies aren’t going to need what they produce? No, they will. It is still the best at what it does. For now.
But the narrative has been injured for a stock that is in almost 500 ETFs, and that is held globally with gusto. A stock that has benefitted from an almost cult-like and loyal following. I think companies will still want what they have, but competition is coming on strong and those fat margins may ultimately be shaved.
It’s quite possible that NVDA could be dead money for some time. We’ll see with earnings coming. Are the earnings going to be good? I imagine they will. Will CEO Jensen put on a brave face and shoot down the potential for competition from DeepSeek and others? Maybe.
But for now the bloom is off. Markets and stocks often perform at the margin, and the slightest shift can be meaningful. This is not a small shift.
For holders of the stock I think it’s maybe not a bad hold for the moment, but with protection. A good report could get the stock a pop. Maybe a pop and drop.
I would be collaring the name by selling an higher call to finance a downside put spread. For income-seekers I see limited upside and therefore see some value in selling a March 130 call strike at high option pricing levels in order to generate a little cash-flow..
It’s an unfamiliar place for NVDA shareholders to be, but it may be time to be defensive.
I am going to be the contrarian and argue that NVDA will bounce back … perhaps not in the short-term, but certainly over time.
As the Eagles said … there are rumors going round.
And the rumors are that DeepSeek is a deep fake.
That there is a lot more going on behind the scenes, including the use of high-end NVDA chips.
And that means long-term support for NVDA.
Heck, in the past few days we’ve seen massive investment in ChatGPT and others.
The tech is supporting the tech against … the CCP tech.
Will NVDA get smacked in the short-term … yes.
But it will bounce back.
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