Nvidia's stock just did something it hasn't done in a year. Here's what history says happens next.

Nvidia stock is tanking, and history suggests a clear direction of what way it could go in 2025.

| More on:
Woman and man calculating a dividend yield.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Over the last few days, the financial world has gone into a tizzy over a new start-up in the artificial intelligence (AI) realm. Chinese company DeepSeek sent shockwaves around the world after releasing a model akin to ChatGPT.

The primary reason investors are panicking is because DeepSeek claims to have trained its model on older, less sophisticated chipware from Nvidia (NASDAQ: NVDA). These claims have left investors scratching their heads, questioning if Nvidia's newer architecture is worth the hefty price tag.

As a result, shares of Nvidia have gone into a days-long downward spiral. Is this a buying opportunity, or could Nvidia stock be headed much lower?

Below, I'm going to analyze some interesting trends in Nvidia's stock and make the case for what direction I think shares could be headed.

What did Nvidia stock just do?

The graph below illustrates multiple sell-offs seen in Nvidia stock in the days following DeepSeek's arrival. Though you'd think declines of this magnitude say it all, there's actually something pretty interesting going on in the background.

NVDA Chart

NVDA data by YCharts.

When a stock price moves, so does the value of the company. In the case of Nvidia, the company's cratering share price has resulted in as much as $600 billion of lost market capitalization.

On the surface, this looks horrific. However, as it often is the case with investments driven by overwhelming emotions, there's more than meets the eye.

Since Nvidia's market cap has dropped, so, too, have its valuation multiples. As of this writing (Jan. 29), Nvidia's forward price to earnings (P/E) multiple is 30.1.

Below, I'm going to dive into why this contraction in valuation multiples is important and what history suggests could happen next.

What does history suggest will happen?

In the table below, I've summarized Nvidia's forward P/E as of quarter end for the last year.

Category 10/31/2023 1/31/2024 4/30/2024 7/31/2024 10/31/2024 Current
Forward Price to Earnings (P/E) 24.5 30.4 35.7 44.6 33.9 30.1

Data source: Yahoo! Finance.

The last time Nvidia's forward P/E hovered around 30 was last January. This is important to note because back in January 2024, Nvidia's market cap was $1.5 trillion -- approximately half of what it is today.

Given the parity between the company's forward P/E between now and a year ago, you might be inclined to think Nvidia stock will soar higher -- as was the case throughout 2024. While such dynamics are what history suggests could happen, there is some important nuance to consider this time around.

Pay attention to this nuance

Since Nvidia's current forward P/E multiple is in line with where it was a year ago despite the company's market value doubling, this implies that Wall Street analysts are also expecting Nvidia's earnings to double.

Looked at a different way, if Nvidia's market cap had doubled, but the company's earnings didn't accelerate at a commensurate pace, then Nvidia's forward P/E would have widened. This is a concept known as valuation expansion.

But as I pointed out in the intro, the DeepSeek storyline is calling into question what demand trends are going to look like for AI infrastructure -- especially graphics processing units (GPU), which are Nvidia's bread and butter.

Candidly, I would not be surprised to see some analysts begin haircutting their revenue and earnings projections for Nvidia. While this does not mean Nvidia should be seen as overvalued, I think investors need to let industry experts digest the DeepSeek news and refine their models accordingly.

In other words, Nvidia's current forward P/E being nearly identical to where it was ago could be seen as a bit of coincidence, as earnings estimates are almost certainly going to change -- thereby calling into question how relevant the forward P/E ratio is right now.

At a broader level, though, I'm confident Nvidia will remain a leader in the AI race as its GPUs should continue playing an important role in the technology's development going forward. Just how much? That's the billion-dollar question.

So while history may suggest Nvidia's value could double this year, I'd think twice about that. In the long-run, I do think there's still a lot of value to be recognized investing in Nvidia stock. I just don't think shares are going to double again in 2025.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Should you invest $1,000 in Noxopharm Limited right now?

Before you buy Noxopharm Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Noxopharm Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Adam Spatacco has positions in Nvidia. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Nvidia. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

Electric vehicle such as Tesla being charged at charging station.
International Stock News

Tesla searches for Musk successor: Why this matters

Could Elon get the chainsaw from his own board?

Read more »

customers inside and outside a Microsoft retail store
International Stock News

Microsoft shares earnings report: What's the verdict?

Investors moved the Microsoft share price significantly.

Read more »

Warren Buffett
International Stock News

Countdown to Berkshire's AGM: What do investors expect to hear from Warren Buffett this year?

All eyes will be on Omaha, Nebraska this weekend.

Read more »

A smiling woman holds a Facebook like sign above her head.
International Stock News

Meta surges on blockbuster earnings report

It's a good day to be a Meta investor.

Read more »

A family sits on their couch, eyes glued to the television.
International Stock News

Can Netflix be a $1 trillion company by 2030?

How much more can it grow its subscription base?

Read more »

A man looking at his laptop and thinking.
International Stock News

Stock-split watch: Is Nvidia next?

It was nearly one year ago that Nvidia last split its stock.

Read more »

A man looking at his laptop and thinking.
International Stock News

Here's why Berkshire Hathaway stock is a buy before May 2

Giving Buffett and his team your cash to invest for you is likely to be a solid choice no matter…

Read more »

Robot dab indicating a rocketing ASX share price
International Stock News

For Tesla shares, the future rests on autonomous driving and robotics

Tesla has been under pressure lately, with EV demand dwindling.

Read more »