It's not just the usual herding behavior though. There's a convex response to news like this because people look at higher order effects like the growth of growth for stocks. Basically the DeepSeek story is about needing 40x fewer compute resources to run inference if their benchmarks are true. The dip doesn't mean that NVidia is now doomed, it simply means that if DeepSeek is legit, you need much less NV hardware to run the same amount of inference as before. Will the demand rise to still use up all the built hardware? Probably, but we went from a very stratospheric supply constraint to a slightly less stratospheric one, and this is reflected in the prices. Generally these moves are exaggerated initially, and it takes a bit of time for people to digest the information and the price to settle. It's an oscillating system with many feedback loops.
As someone who bought NVDA in early 2023 and sold in late 2024 I can say this is wrong.
There was never a question of if NVDA hardware would have high demand in 2025 and 2026. Everyone still expects them to sell everything they make. The reason the stock is crashing is because Wall St believed that companies who bought 50B+ of NVDA hardware would have a moat. That was obviously always incorrect, TPUs and other hardware was eventually going to be good enough for real world use cases. But Wall St is run by people who don't understand technology.
Loving the absolute 100% confidence there and the clear view into all the traders' minds that are trading it this morning.
If they'll sell everything they make and it's all about the moat of their clients, why is NVDA still down 15% premarket? You could quote correlation effects and momentum spillover, but that is still just the higher order effects I mentioned about people's expectations being compounded and thus reactions to adverse news being convex.
Presumably because backorders will go down, production volume and revenue won't grow as fast, Nvidia will be forced to decrease their margins due to lower demand etc. etc.
Selling everything you make is an extremely low bar relative to Nvidia's current valuation because it assumes that Nvidia will be able to grow at a very fast pace AND maintain obscene margins for the next e.g. ~5 years AND will face very limited competition.
That's literally what I wrote in my post, which the parent disagreed with. You could disagree with the part that it is because inference is now cheaper - but again I'd argue that's just a different way of saying there's no moat.
People owned NVDA because they believed that huge NVDA hardware purchases was the ONLY way to get a AI replacement for a Mid Level software engineer or similar functionality.
That's basically what I wrote: "it simply means that if DeepSeek is legit, you need much less NV hardware to run the same amount of inference as before."
So I still don't understand what it is that you are so strongly disagreeing with, and I also don't understand how having owned NVidia stock somehow lends credence to your argument.
We are in agreement that this won't threaten NVidia's immediate bottom line, they'll still sell everything they build, because demand will likely rise to the supply cap even with lower compute requirements. There are probably a multitude of reasons why the very large number of people who own NVidia stock have decided to de-lever on the news, and a lot of it is simple uneducated herding.
But we are fundamentally dealing with a power law here - the forward value expectations for NVidia have exponential growth baked in to the hilt, combined with some good old fashioned tulip mania, and when that exponential growth becomes just slightly less exponential, that results in fairly significant price oscillations today - even though the basic value proposition is still there. This was the gist of my comment - you disagree with this?
Up until recently there was a belief by some investors that OpenAI was going to "cure cancer" or something as big as that. They assumed that the money flowing into OpenAI would 10x, under the assumption that no one else could catch up with them after that event and a lot of that would flow to NVDA.
Now is looks like that 10x of flow of money into OpenAI will no longer exist. There will be competition and compodiditzation, which causes the value of the tokens to drop way more than 40x.
