Nvidia (NASDAQ:NVDA) shares were on a wild ride this week, caught in the whirlwind of groundbreaking AI developments from China.
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Shortly after President Donald Trump announced the $500 billion Project Stargate initiative at the White House, Chinese tech company DeepSeek unveiled its open-source R1 LLM. This new language model, which requires significantly less computing power than existing alternatives, has sparked concerns among suppliers of AI processing hardware, including Nvidia.
According to DeepSeek, the R1 model delivers accurate results using only a fraction of the AI accelerators – and at a significantly lower cost – compared to OpenAI. The market’s negative reaction toward Nvidia stems from fears that the R1 model could herald a new era of AI, where greater efficiencies dramatically reduce demand for the company’s industry-leading products.
However, according to one investor, known by the pseudonym Stone Fox Capital, these concerns are unwarranted.
“The main time to really freak out over Nvidia chip demand is when another company creates better GPUs,” the investor asserts.
Stone Fox explains that DeepSeek has not improved the performance of existing models but merely reduced costs. The investor cites Jevons’ Paradox, which posits that increasing efficiencies actually boost technology usage across the board. In other words, by making AI cheaper to deploy on a broader scale, demand for Nvidia chips is unlikely to decline.
In addition, Stone Fox expects continued efforts to promote greater AI innovation will still rely heavily upon Nvidia-supplied hardware.
“All the data points appear to suggest chip demand will remain strong with the goal of U.S. hyperscalers to reach AGI [artificial general intelligence], not just cheap AI,” the investor adds.
Moreover, Stone Fox questions the veracity of DeepSeek’s claims. The investor cites one industry executive who believes that DeepSeek has actually employed way more computing power (50,000 H100 chips) than advertised.
Stone Fox calculates that this amount of firepower would have cost DeepSeek $1.5 billion, making their R1 model significantly more expensive than the company has admitted.
“Nvidia is relatively cheap with either DeepSeek misleading the market on the GPUs used to build the R1 model, or tech experts accurate about Jevons Paradox where AI chip demand will only grow,” Stone Fox sums up.
With unwavering confidence in NVDA’s trajectory, Stone Fox rates the stock a Buy. (To watch Stone Fox Capital’s track record, click here)
Wall Street analysts remain steadfast in their bullish outlook on NVDA as well. With 37 Buy recommendations and 3 Holds, NVDA is a firm Strong Buy. Its 12-month average price target of $178.32 implies a 38% upside potential from current levels. (See NVDA stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
