The past couple of weeks have been quite turbulent in the capital markets. In late January, a Chinese start-up called DeepSeek sent investors into a panic as the company claimed to have built powerful artificial intelligence (AI) applications for much less than what businesses in the U.S. are spending. As a result, technology stocks have been spiraling downward.
One company that has been hit hard over the DeepSeek narrative is Nvidia (NASDAQ: NVDA). With the company scheduled to report fourth-quarter and full-year 2024 earnings on Feb. 26, investors are anxiously waiting to see just how much DeepSeek may affect Nvidia’s business.
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Below, I’m going to explain why investors may not need to wait until later this month to assess if Nvidia stock is a good buy heading into earnings.
Big tech just squashed the DeepSeek fears
The bear narrative surrounding Nvidia during the past two weeks is that if DeepSeek’s claims are true, businesses may scale back their AI infrastructure spending. If this were to happen, demand for Nvidia’s expensive data center graphics processing units (GPU) would likely slow — thereby calling into question what the company’s future prospects look like.
Thankfully, Nvidia’s “Magnificent Seven” cohorts have already reported earnings. And one common thread stitching each of these behemoths together is that spending on AI infrastructure is on the rise. Comments made by management from Microsoft, Meta Platforms, Alphabet, and Amazon have signaled that capital expenditure (capex) budgets for this year could be in excess of $300 billion if they all spend at the high end of their provided ranges.
This is an important figure to understand, as each of these companies already uses Nvidia products. And while I’ll admit that these companies are also investing in their own custom chipware, it’s unlikely that they will migrate entirely away from Nvidia anytime soon. For this reason, I see the rising AI infrastructure spending as a positive sign for Nvidia — and one that underscores the company’s robust growth prospects.
Image source: Getty Images.
How does Nvidia stock typically perform after an earnings report?
The chart below shows Nvidia’s stock price movement during the past three years. I’ve annotated the company’s earnings reports as seen in the purple circles with the letter “E” in the middle.
One thing is abundantly clear from the trends illustrated above: Nvidia shares usually rise after an earnings report. While the days leading up to or shortly after anearnings callmay carry some more pronounced volatility, Nvidia’s resilience always seems to shine through in the end.
Should you buy Nvidia stock before Feb. 26?
If you’re going purely based on history, the trends seen in the stock chart above would suggest that Nvidia stock will be headed higher after it reports earnings on Feb. 26. But smart investors know all too well that past performance shouldn’t be used as your sole barometer.
Companies ride the wave of AI for enhanced efficiency and superior quality, a groundbreaking ISG Provider Lens™ report highlights
Amidst the rapid evolution of artificial intelligence and cloud technologies, U.S. enterprises have undergone a metamorphosis in their approach to application development and management (ADM) strategies as per the latest research published by Information Services Group (ISG) III, a prominent global technology research and advisory firm.
Entrenched in a quest for cost optimization, U.S. companies have embraced AI technologies throughout the lifecycles of applications, catapulting the adoption of generative AI (GenAI) in early developmental stages, asserts the 2024 ISG Provider Lens™ Next-Gen ADM Services report for the U.S.
Leveraging AI tools has led to the automation of ADM tasks, resulting in enhanced software quality, minimized downtime, and boosted efficiency, as outlined in the report. This automation journey contributes to heightened developer productivity, reduced time to market, and proactive maintenance practices.
Prioritizing quality assurance, U.S. enterprises are exploring GenAI's potential applications in this realm. By automating test creation and scenario simulation, GenAI accelerates testing processes, uncovering discrepancies that might elude manual inspections. Companies tread cautiously, endeavoring to embed quality assurance mechanisms in GenAI to ensure ethical and optimal functionality.
A notable trend sees an increasing number of U.S. enterprises consolidating applications and underlying IT infrastructure engagements, enwrapping servers, networks, and cloud services, heralding optimized performance, scalability, security, and cost-efficiency, discloses the report.
Enterprises are gravitating towards major public cloud platforms for robust, scalable, and flexible applications, facilitated by orchestration tools like Kubernetes, microservices architectures, containerization, and DevOps methodologies. This strategic shift to the cloud harmonizes with market dynamics, enabling enterprises to pivot swiftly in response to evolving customer needs.
Fusion of site reliability engineering (SRE) with AI for IT operations (AIOps) heralds a new epoch in ADM operations, affirms the report. This blend harnesses machine learning and advanced analytics to navigate vast operational datasets, empowering companies with holistic insights into system performance and the ability to preemptively address potential glitches for seamless service delivery.
The report delves into additional ADM trends in the U.S., spotlighting providers' adeptness in catering to industry-specific demands, and the ascendancy of Agile and DevOps practices in continuous testing services, underpinning a narrative of ongoing evolution and adaptability in the technology sphere.
To me, the more important idea explored here is that Nvidia’s largest customers have all come out and said that they remain committed to their AI growth roadmaps. And a subtle pillar supporting these AI ambitions is significant spending on capex. In theory, this bodes very well for Nvidia’s future.
While exact timing isn’t something I really encourage, I think this is a unique situation in which it’s not worth waiting a few more weeks just to hear what Nvidia’s management has to say about DeepSeek. The breadcrumbs dropped by big tech should serve as a good proxy for what Nvidia investors can expect in terms of growth.
For this reason, I’d buy the dip in Nvidia now — before the company’s earnings report later this month. The current sell-off represents an unusual window during which Nvidia stock is trading at an abnormally low valuation, which I think is worth taking advantage of.
Should you invest $1,000 in Nvidia right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.