Why I’m Not Buying the Dip on Nvidia (Yet): Key Risks You Should Know

1. Not Every Dip is Worth Buying: Nvidia’s current risks make this dip an exception.

2. DeepSeek’s Disruption: New AI models slash costs, threatening Nvidia’s revenue.

3. Hyperscalers Shift Inward: Major clients are reducing reliance on Nvidia’s chips.

4. Valuation Risks: High expectations with uncertain growth create downside risk.

5. Margin Pressure: Rising competition and efficiency trends may erode profits.

Introduction: A Contrarian Stance

Buying the dip is a strategy I typically stand by. It’s a cornerstone of value investing—finding great companies temporarily out of favor and scooping them up at a discount. Nvidia has historically been one of those companies, with stellar growth, strong management, and an undeniable edge in AI and graphics processing. But here’s the thing: not every dip is created equal. This time, the risks lurking beneath the surface feel different. And as much as it goes against my usual approach, I’m sitting this one out for now.

The DeepSeek Disruption

Nvidia’s dominance in AI chips has faced a sudden, unexpected challenge: DeepSeek. This new player isn’t just another competitor; it’s fundamentally shifting the economics of AI. DeepSeek’s models are dramatically reducing the cost of AI inference—by as much as 90-95% compared to existing solutions. That’s not just a margin squeeze; it’s a potential overhaul of the entire demand structure for Nvidia’s products. When efficiency becomes the new frontier, the ‘just buy more GPUs’ mindset doesn’t hold the same weight. This shift could ripple through Nvidia’s revenue streams faster than many investors are pricing in.

Hyperscalers Turning Inward

Nvidia’s growth has been fueled in large part by hyperscalers like Amazon, Microsoft, and Google, which account for over 40% of its revenue. But the winds are shifting. These giants aren’t content relying solely on Nvidia’s chips anymore—they’re building their own AI hardware. This isn’t just a matter of diversification; it’s about cost control and efficiency at a scale only hyperscalers can achieve. The implications? Even if Nvidia’s products remain top-tier, demand from its biggest customers could taper off as they opt for in-house solutions. This trend raises serious questions about Nvidia’s growth trajectory, especially if these companies prioritize cutting costs over peak performance.

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Valuation Risks Amid High Uncertainty

Nvidia’s stock isn’t cheap. Even after the recent dip, its valuation still reflects aggressive growth expectations. The problem? The future looks murkier than it did just a few quarters ago. There’s a huge gap between the high and low revenue and EPS estimates for the next few years. That kind of divergence signals real uncertainty. Compare that to a company like Alphabet, where forecasts are far more stable. When expectations are stretched, even small disappointments can trigger big sell-offs. And right now, Nvidia is priced as if everything will go perfectly—despite mounting risks that suggest otherwise.

Margin Compression: The Hidden Threat

Nvidia’s margins have been a key part of its growth story. But sustaining those margins is getting tougher. The competition isn’t just about who makes the best chip anymore—it’s about who can deliver the best performance for the lowest cost. Hyperscalers developing their own chips means Nvidia might have to cut prices to stay competitive. Add in the pressure from more efficient AI models that don’t require as much computing power, and you’ve got a recipe for shrinking margins. It’s not an immediate cliff, but it’s a steady erosion that could weigh heavily on profits over time.

The Values Buffett Embodies

Patience is underrated in investing. When a stock like Nvidia faces structural shifts—whether it’s new competition, changing customer behavior, or valuation risks—it’s often better to wait for clarity. Right now, the waters are choppy. Revenue projections are all over the place, hyperscalers are rethinking their strategies, and the AI landscape is evolving fast. Instead of trying to catch the falling knife, I’d rather see where it lands. There’s no shame in waiting for a better entry point, especially when the risks feel as pronounced as they do today.

Conclusion

Nvidia is an exceptional company with a history of innovation and strong leadership. But great companies don’t always make great investments at every price point. Right now, the combination of competitive threats, valuation risks, and shifting market dynamics makes me cautious. It’s not about doubting Nvidia’s long-term potential—it’s about recognizing that the current risks outweigh the potential rewards in the near term. If you’ve got thoughts, questions, or just want to discuss this further, feel free to shoot us an email. And if you found this analysis valuable, consider sharing it with your friends. After all, investing is better when we learn together.

Happy investing!
Josh

The information is provided for educational purposes only and does not constitute financial advice or recommendation and should not be considered as such. Do your own research.