Time to Sell Nvidia?

and my exact trade idea on it

Author

Pete Tan
January 27, 2025

China’s DeepSeek just dropped a bombshell—and Wall Street’s scrambling. Let’s cut through the noise.

1. What’s Happening?

DeepSeek, a Chinese AI lab, just released R1—a ChatGPT-rivaling model trained for $5.6M (vs. OpenAI’s $100M+ budgets) using fewer, weaker NVIDIA chips. Here’s the twist:

  • Software wizardry: They optimized code to squeeze 10x more performance from less powerful NVIDIA H800 GPUs.

  • Open-source dominance: R1 is free, trending #1 on AI platforms, and beats rivals in math/coding benchmarks. You can check it out here https://www.deepseek.com/

  • Speed demon: Built in 2 months vs. years for U.S. competitors.

The kicker? DeepSeek’s CEO claims they’ve stockpiled 50,000 NVIDIA H100s despite export bans.

2. Key Points for Investors

🔥 The Bull Case (Long NVIDIA):

  • AI demand explodes: Cheaper tools = more startups/enterprises entering the AI race → MORE GPU demand, not less.

  • NVIDIA’s ecosystem lock: Software, clusters, and developer loyalty are moats (like Apple’s iOS).

  • Blackwell chips incoming: NVIDIA’s next-gen GPUs could reset the performance curve.

💀 The Bear Case (Short NVIDIA):

  • Efficiency = risk: If labs replicate DeepSeek’s tricks, demand for high-end chips could slow.

  • Hyperscalers rebel: Tech giants are designing custom AI chips to cut reliance on NVIDIA.

  • Margins at risk: NVIDIA’s sky-high GPU margins face pressure if efficiency trumps raw power.

3. Market Reactions

  • NVIDIA stock dipped 3% post-DeepSeek news but remains up 12% YTD.

  • Analysts are bullish: Average price target suggests 17% upside.

  • Earnings watch: NVIDIA’s Feb 26 report will focus on data center trends, China risks, and Blackwell updates.

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4. What Investors Should Do

🚀 For Optimists (Long NVIDIA):

  • Buy dips: Short-term panic = opportunity if you believe in NVIDIA’s ecosystem.

  • Watch hyperscalers: If giants keep buying NVIDIA chips, bull thesis holds.

🛡️ For Skeptics:

  • Diversify: Consider AI software plays (Microsoft, Meta) or chipmakers like AMD.

  • Hedge: Options strategies to protect against post-earnings volatility.

🔍 For Everyone:

  • Follow the price: Post-earnings moves will signal if DeepSeek fears are real.

🙍 For Pete:

  • I am going to sell some puts on Nivdia

  • Currently, the $125 put expiring on 21 Feb is going at $0.99

  • That is close to 1% in 3 weeks. 😃 

  • And this is right before NVDA earnings so some safety built in too

5. The Big Picture

This isn’t just about chips—it’s about AI democratization. DeepSeek’s breakthroughs could:

  • Boost global AI adoption (cheaper tools = more users).

  • Force NVIDIA to innovate (lower-cost GPUs? Better software?).

  • Rewire U.S.-China tech rivalry: Scarcity bred Chinese innovation. Now, America’s giants are on notice.

Final Take:
DeepSeek is a disruptor, not a deathblow. NVIDIA’s fate hinges on one question: Will efficiency expand the AI pie or shrink GPU margins? For now, the market says “Buy.” Stay nimble.

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Happy Hunting!

Pete
Invest with Pete

🚨‼️ By the way, I’ll never PM anyone on telegram or any other social media platforms. If you receive any “Pete” messaging you, these are scammers impersonating me. Pls beware!

The information provided in this newsletter is for informational purposes only and does not constitute financial advice. Readers should seek their own independent financial advice before making any investment decisions. Please note that while Pete is a portfolio manager, the opinions expressed in this newsletter are his own and do not represent the views of any organization. Always perform your own research and due diligence before investing.