Shares of Nvidia (NASDAQ: NVDA) suffered a sharp drop earlier this week. News that low-cost artificial intelligence (AI) model from DeepSeek, a Chinese AI start-up, could compete with the most advanced offerings from companies like OpenAI sent a shockwave through the tech sector.
If you can build it for millions, why spend billions on Nvidia's data center chips? This is the core concern that sent Nvidia tumbling. But some Wall Street analysts believe DeepSeek's accomplishment will benefit the chip giant.
Citigroup analyst Atif Malik maintained a "buy" rating on the stock with a $175 price target, implying upside of 40% over Nvidia's current share price of about $125. However, there are mixed opinions about how DeepSeek will ultimately impact Nvidia's data center business.
If DeepSeek can build a state-of-the-art AI model at low cost, it could push big tech companies to adopt similar AI training techniques to do more with less, slowing Nvidia's recent momentum. The company's data center segment hauled in $30.8 billion of revenue in its fiscal 2025 third quarter, more than doubling year over year.
However, an Nvidia spokesperson told CNBC on Monday that DeepSeek's accomplishment is an "excellent AI advancement." And there is a possibility that instead of pushing tech companies to pull back on data center spending, the efficiency of DeepSeek's model will only increase the overall demand for AI and Nvidia's hardware to further accelerate innovation in the space.
Is the stock heading to $175, and should you buy it now? There are a lot of unknowns at present, and some experts are skeptical of DeepSeek's claim that it trained its advanced model for under $6 million. Still, with Nvidia stock already trading at a premium valuation, it may struggle to hit new highs in the near term as investors sort out what DeepSeek means for the industry.
The safest course is to wait until after Nvidia's earnings report on Feb. 26 when management updates investors on demand trends. That will offer insight into how these recent developments are impacting the business.
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Citigroup is an advertising partner of Motley Fool Money. John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
1 Wall Street Analyst Thinks Nvidia Stock Is Going to $175. Is It a Buy? was originally published by The Motley Fool
