Where Will Nvidia Stock Be in 3 Years?

If you have held onto Nvidia (NVDA -3.67%) stock over the past three years, you may be quite pleased with your investment. A $10,000 investment made in early 2022 would now be worth nearly $55,000, representing a remarkable return of 450%. However, it is important to remember that past performance does not guarantee future success.

One significant factor affecting Nvidia's future is the new Chinese large language model (LLM) known as DeepSeek. This model has shown that advanced AI systems can be created without excessive costs, differing from the approaches taken by American companies like OpenAI, Alphabet, and Meta Platforms. As we delve deeper into this topic, we will explore how this situation may evolve over the next three years and beyond.

This Isn't Just About DeepSeek

While DeepSeek might be seen as the main challenge for the AI industry, there is a larger issue to consider. The primary concern is that training LLMs is often too costly in relation to the revenue they can generate. Although the launch of this cheaper Chinese alternative has highlighted this issue, industry experts have been raising flags about it for quite some time.

In June 2024, Goldman Sachs published a report titled "Gen AI: Too Much Spend, Too Little Benefit," which discussed how the anticipated $1 trillion investment by tech giants in generative AI may not yield significant returns. The report argued that LLMs might not be the best solutions for complicated problems that would justify their expensive development.

Nvidia is somewhat insulated from this dilemma because it primarily operates in the area of providing the graphics processing units (GPUs) that companies in cloud computing require to facilitate their AI capabilities. These companies then rent out resources to startups that focus on consumer-facing applications. Nonetheless, as some startups struggle financially—like OpenAI, which reported a loss of $5 billion in 2024—there might soon be a downturn in demand for chips.

DeepSeek Highlights an Industry Problem

While many supporters of AI have overlooked signs of unsustainable spending, DeepSeek has made these issues undeniable. Since its introduction in January, this open-source generative AI chatbot quickly surged to become the most downloaded free app in the U.S. on Apple's App Store, surpassing the popularity of ChatGPT.

More importantly, DeepSeek's R1 model reportedly matches the performance of ChatGPT's o1, despite being developed for only $6 million using less advanced Nvidia H800 chips. OpenAI has alleged that DeepSeek might have utilized proprietary technology through a method called "distillation" during its development, and some officials, including the White House's AI czar David Sacks, have suggested that intellectual property theft may have occurred.

In the coming years, it is plausible that the U.S. government could step in to protect American AI firms by imposing stricter regulations on chip exports to China. This could negatively affect Nvidia's sales in China or target DeepSeek based on intellectual property and national security issues, similar to actions recently taken against TikTok.

However, it seems that the rush towards cheaper LLMs is already underway. Even if the U.S. manages to address DeepSeek, other cost-effective alternatives could emerge, making it difficult to defend the expensive nature of big tech’s AI investments.

Where Will Nvidia Be in 3 Years?

Looking ahead, investors should be prepared for Nvidia's growth and profit margins to potentially decline as the tech industry realizes that its most advanced and costly hardware may not be necessary for developing LLMs and other AI applications. Although the stock's rapid growth may slow, a steep decline in value is unlikely.

Currently, with a forward price-to-earnings ratio of 29, Nvidia shares are relatively affordable, especially considering the company posted a 94% sales increase in its most recent quarter. This lower valuation might indicate that some of Nvidia’s long-term struggles are already reflected in its current stock price.

Note: The author has no financial interests in any of the stocks mentioned. The article presented here is for informational purposes only.

Nvidia, Stock, Growth