Large-cap tech’s planned capex for 2025 is worrying investors. What will be the return on that capital? Never before have these companies made such large bets. Before DeepSeek, it was assumed the tech giants – with their deep pockets and almost limitless resources – would enjoy a wide moat in the AI arena. And from there, that justified the high valuation multiples. Not now. DeepSeek’s arrival challenges those long held assumptions (and valuations).
NVDA
Actionable market insights delivered to your inbox weekly
Investors Starting to Question AI’s ROIC
AI investors were caught off guard this week on news of China’s ChapGPT rival “DeepSeek”. It’s alleged DeepSeek was developed far more cost-effectively (millions vs billions) than OpenAI’s ChatGPT (and similar large language models). If true (and we don’t know) – this raises questions about the sustainability of current U.S. AI infrastructure investments – forecast to top $1 Trillion next year. All of a sudden – valuations for these AI stocks are being questioned.
NVDA: What Do You Pay for Growth?
2024 will go down as another great year for stocks in the trader’s almanack. However, what won’t be recorded is just seven stocks comprised ~54% of the S&P 500 total gains (~24% with two trading days remaining). It’s a bit like golf – you only need to record the final score – not how you did it. However, the how matters (not just the ‘what’). This post will address the question of what to pay for one the most popular stocks today – Nvidia (NVDA). The asking price is $137 at 32x forward earnings. But does that represent great value given its growth assumptions?