We are constantly reminded of not being too comfortable in the investment world. When things seem to be ringing on an autopilot, innovation shakes things up. A recent example was the release of the original ChatGPT in late 2022, pushing artificial intelligence (AI) to the forefront, sparking races in industry worth trillions of dollars. A breakthrough from a Chinese company called Deepseek may once again be shaking things (or maybe there’s more in the story).
This onion has several layers. Here’s what you need to know.
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What is Deepseek?
Deepseek is a Chinese high-tech company that, like Alphabet’s, created the Deepseek-R1, which competes with ChatGPT-4 and other large-scale language models (LLMS). (NASDAQ: GOOG) (NASDAQ: Google) Google Gemini and Llama 3 were created by the Meta Platform (NASDAQ: Meta). But that’s not something that falls into the headlines. Deepseek “trained” the model for $6 million and “trained” it with just 2,000 slightly outdated nvidias (NASDAQ: NVDA) Graphic processing unit (GPU). This is a surprising argument when it is reportedly costing hundreds of millions of dollars and thousands of dollars of top shelf GPUs. For example, Xai’s Colossus uses 200,000 GPUs and plans to expand to 1 million.
The news has crushed Nvidia’s stock. It fell more than 20% from a recent record high as investors were worried about what the breakthrough would do to GPU demand.
But does this breakthrough look exactly like that? Probably not. Industry experts say the actual cost of the DeepSeek-R1 is $1.6 billion and they believe the company has 50,000 NVIDIA GPUs. Deepseek may have exaggerated its victory due to the US export control over a powerful GPU, and prefers to avoid the rage of regulators, or perhaps more attention. Either way, it doesn’t look like the US tech giant will soon stop buying thousands of Nvidia GPUs.
Alphabet and Amazon (NASDAQ: AMZN) In a recent revenue call, we announced a massive 2025 budget for Capital Expenditures (CAPEX). Amazon spent $26 billion in the fourth quarter and expects this to continue in 2025, but Alphabet paid $14 billion in 2025 with a plan to spend $75 billion. Much of this is directed at data centers, servers, and GPUs.
Are you buying nvidia stocks now?
Nvidia’s incredibly successful top of 2024 will be difficult to feature sales of $61 billion with a 126% growth rate. This was led to incredible growth in data center sales, reaching $48 billion with a 217% growth. However, 2025 is incredible too. Through three-quarters, revenues were $91 billion, led by a significant increase in the data center segment.
Source: Nvidia.
Better yet, operating profit was $61 billion through the third quarter of fiscal year 2025. The operating profit margins of 61% and 61% in 2024 indicate that demand is accelerating as customers are willing to pay a steep price to acquire NVIDIA products.
The decline in Nvidia stocks caused by Deepseek, not disaster, appears to be a great opportunity for long-term investors. As shown below, the positive price (P/E) ratio fell sharply along with the stock price.
NVDA PE ratio (forward) data by YCHARTS.
As you can see on the chart, sudden declines in ratings are not unique. However, it is rare that only happened once in 2023 and 2024. Both times were great opportunities for investors to buy stocks. With Deepseek’s claims in question, Big Tech should make sure its capital investment is robust, making sure Nvidia’s grand results and a lower rating than before. Long-term investors should consider buying stocks now.
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Randi Zuckerberg, a former director of market development, Facebook spokeswoman and sister to Metaplatform CEO Mark Zuckerberg, is a member of Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of the board of directors of Motley Fool. Bradley Gichard has a job at Amazon. Motley Fool has positions for Alphabet, Amazon, Meta Platforms and Nvidia, and is recommended. Motley Fools have a disclosure policy.
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