top of page

NVIDIA’s future growth potential: a post-January 2025 analysis

Writer's picture: Ken PhilipsKen Philips


On January 27, 2025, NVIDIA's stock dropped 16.9% to $118.42, reflecting market concerns over AI infrastructure spending shifts and geopolitical tensions. This drop was largely attributed to the emergence of DeepSeek, a Chinese AI startup offering competitive AI models at lower costs. The event raised questions about NVIDIA’s long-term dominance in AI computing and whether it can maintain its rapid growth trajectory in the face of increasing competition. Despite this setback, NVIDIA remains a dominant force in AI and high-performance computing, with its GPUs powering the largest cloud, AI, and data center companies in the world. But what does the future hold for NVIDIA? Can it sustain its growth, or will it face further challenges?


1. NVIDIA’s revenue in context

NVIDIA reported $60.92 billion in revenue for fiscal year 2024. To understand its impact, we compare this to the financials of its largest customers:

  • Combined revenue of Microsoft, Meta, Amazon, Alphabet, and Tesla (2023): $1,220 billion

  • NVIDIA’s share of their total revenue: ~5%

For a single supplier to capture such a large percentage of revenue from the most influential tech companies is significant. NVIDIA’s AI chips, particularly the H100 and A100 GPUs, have become essential for AI workloads, cloud computing, and autonomous driving.


2. can NVIDIA sustain its growth?

category

amount (billion USD)

% of client revenue (1,220B)

total revenue of clients

$1,220

100%

estimated personnel expenses

$223.1

18.3%

net profits

$185.8

15.2%

total purchases from NVIDIA

$60.92

5.0%


NVIDIA has been a clear leader in AI computing, and its future growth depends on several factors:


1. Expansion into new markets

  • NVIDIA is actively investing in AI, robotics, and automotive industries, expanding beyond traditional GPU markets.

  • The rise of AI-powered cloud services and edge computing presents new revenue opportunities.

2. Competitive pressure from rivals

  • DeepSeek’s competitive AI model has already caused investor concern. Can NVIDIA differentiate itself through innovation?

  • AMD and Google’s Tensor Processing Units (TPUs) are becoming stronger alternatives.

  • Clients like Microsoft, Amazon, and Meta may develop their own AI chips, reducing reliance on NVIDIA.

3. Geopolitical and supply chain risks

  • The U.S.-China tech war could impact NVIDIA’s ability to sell advanced AI chips globally.

  • Restrictions on exporting cutting-edge GPUs to China could limit future revenue.

4. increasing demand for AI computing

  • Cloud providers Microsoft, Amazon, and Google continue increasing AI-powered cloud offerings.

  • Meta is scaling up AI-powered ad algorithms.

  • Tesla continues developing AI for autonomous vehicles, which will require NVIDIA’s high-performance chips.

3. Challenges & risks

deepseek: hype or real competition?

DeepSeek has positioned itself as a cost-efficient alternative to existing AI models, but its claims require closer scrutiny.

  • Performance benchmarks: mixed evidence

    • DeepSeek claims its R1 model surpasses OpenAI’s latest models in tasks like math and coding.

    • However, these tests lack independent verification, raising questions about its real-world capabilities.

  • Cost-effective development: plausible but unverified

    • DeepSeek states that R1 was trained on only 10,000 NVIDIA GPUs, costing just $6 million—far below OpenAI’s multi-billion-dollar expenditures.

    • While AI training costs have decreased, no public breakdown of DeepSeek’s methodology has been provided.

  • Training approach: unconventional but questionable

    • DeepSeek claims to use pure reinforcement learning (RL) without supervised fine-tuning, a method that differs from industry norms.

    • While this might make training cheaper, it also raises concerns about stability and accuracy compared to models like GPT-4.

  • Market adoption: early traction, but long-term impact uncertain

    • DeepSeek’s AI assistant has become the top free app on Apple’s App Store, but user feedback suggests limitations in general-purpose conversations.

    • Some investors are bullish on DeepSeek, but concerns over Chinese government influence and censorship may limit its global adoption.

Should NVIDIA worry?

  • Short-term: NVIDIA’s stock decline was an overreaction, as DeepSeek does not yet threaten core GPU sales.

  • Long-term: If more cost-efficient AI models emerge, companies may shift away from NVIDIA’s premium AI chips.

  • real competition? DeepSeek is not a revolutionary AI breakthrough, but it pressures NVIDIA’s key clients(Microsoft, Google, Meta) to explore cheaper AI solutions.

  • The January 27, 2025, stock drop due to DeepSeek’s competitive AI model highlights the market's sensitivity to new AI competition.

  • Geopolitical tensions could impact NVIDIA’s supply chain and international partnerships.

  • Clients may develop their own AI chips to reduce dependency on NVIDIA in the long term.

  • The high cost of AI infrastructure may slow adoption among smaller firms, potentially limiting market expansion.

Can NVIDIA maintain its leadership?

NVIDIA has established itself as the undisputed leader in AI hardware, but its long-term dominance is not guaranteed. While it still captures ~5% of its biggest clients' revenue, challenges from new competitors, geopolitical risks, and in-house AI chip development by its customers may reshape the AI hardware market.

However, NVIDIA’s continued investment in new technologies, partnerships, and expansion into emerging marketswill be key to sustaining its growth. As AI, cloud computing, and automation continue to evolve, NVIDIA must stay ahead of the competition through innovation to maintain its lead in the AI revolution.

11 views0 comments

Recent Posts

See All

Comments


Subscribe to Our Newsletter

  • White Facebook Icon

© 2024 by Ken Philips

bottom of page