Nvidia (NVDA) stock rose by $5.30, or 4.48%, reaching $123.72 in premarket trading on Tuesday, indicating a partial recovery from its significant drop the day before. This rebound follows the market’s reaction to DeepSeek, a Chinese startup’s assertion of creating a top-tier artificial intelligence model at an exceptionally low cost.
Meanwhile, Dan Niles, founder of Niles Investment Management and a former semiconductor and computer hardware analyst during the dot-com bubble, joined ‘Fast Money’ on CNBC to discuss the massive sell-off as AI jitters hit the biggest names in tech. Niles has been vocal about anticipating an AI digestion phase in 2025 since mid-last year, citing several data points that suggest a cooling in the AI investment frenzy.
He noted that Microsoft (MSFT), with its significant stake in OpenAI, had consecutively guided revenues below street expectations for both September and December quarters. Additionally, comments from Microsoft’s CEO about being power constrained rather than chip supply constrained, and statements from OpenAI’s co-founder Ilya Sutskever – a prominent figure in the field of AI – about the exhaustion of internet data for AI training, have added to the concerns.
The release of DeepSeek’s AI model on Christmas Day initially seemed too good to be true to Niles, but further investigation through his Silicon Valley contacts confirmed significant software improvements in AI development. These improvements, such as distillation, mixture of experts, and partial activation, have led to a reevaluation of AI strategies across the industry, with many looking to integrate these innovations into their models.
Niles expressed skepticism about Nvidia’s projected 50% revenue growth for the current year, suggesting that the market’s expectations might be too optimistic. He pointed out Microsoft’s planned $80 billion CapEx for the fiscal year, with a notable decrease in spending projected for the first half of 2025 compared to the latter half of 2024, indicating a significant shift in investment pace.
Moving to other tech players, Niles highlighted Meta (META) as a beneficiary of reduced hardware costs, which could enhance its AI-driven advertising and content personalization efforts. He drew parallels to the post-dot-com bubble era, where companies like Amazon (AMZN) capitalized on the infrastructure built during the bubble’s peak. Niles believes that software companies will similarly benefit from the current AI infrastructure investments, predicting that while Nvidia’s growth will continue, it will be at a slower pace than what analysts currently anticipate. The real value, he suggests, will be found in software companies that can leverage these advancements effectively.
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