Should You Sell Nvidia Stock Before Feb. 26?

Amid all the uncertainty surrounding the DeepSeek AI revelation and new tariffs upending the world economy, Nvidia (NVDA) is reporting earnings on Feb. 26. 

With the artificial intelligence chipmaker's stock down almost 20% in just one week following the industry and trade disruptions, the upcoming financial news creates a noodle point for investors. Is there more room for the semiconductor to fall or will the release be a catalyst for a new leg higher?

A World In Turmoil

Nvidia suffered the single greatest loss by a stock in market history last week. The announcement by Chinese AI lab DeepSeek that its large language model was trained on cheap, underpowered Nvidia chips had investors worrying that demand for its advanced -- and expensive -- AI chips would quickly fall out of favor.

That was exacerbated by President Trump imposing new tariffs on Canada, Mexico, and notably China. He also suggested enhanced levies on Europe would be coming next. 

A global trade war, especially with China, could undermine Nvidia's ability to sell its AI accelerators around the world.

While the chipmaker's fourth quarter earnings will probably show robust growth in revenue and profits, it is far less certain what 2025 holds in store. Now might not be the time to rush into NVDA stock.

A New AI Revolution

Nvidia's valuation rests primarily on its ability to continue selling ever-larger numbers of clusters of pricey AI graphic processing units (GPUs). DeepSeek's model suggests businesses are wasting money buying into that equation. 

Its R1 LLM doesn't rely upon Nvidia's popular H100 chips used by virtually all the Western world. Instead, it uses less powerful and inexpensive chips Nvidia built to get around trade restrictions on technology that the Biden administration imposed. It said, "DeepSeek’s work shows how new models can be created, leveraging widely-available models and compute that is fully export control compliant."

The result was a model that was faster, more efficient, and cheaper. And because it is open-source, developers can tweak the algorithm, fine-tune it, and build on it.

At least that's the story DeepSeek is putting out, but not everyone is sold on it. Many believe the AI lab actually has access to tens of thousands of Nvidia's advanced chips.

The Threat Of Trade Wars

The trade situation could be thornier. While the sale of advanced chip technology is already restricted to China, tariffs could also indirectly impact AI stocks by limiting the availability of computer equipment. 

For example, Nvidia is producing its high-demand GB200 NVL72 server racks in Mexico, but Trump slapped a 25% tariff on all goods imported from there (they were just delayed for one month following talks, however).

Mexico accounted for $103 billion in electronic product imports in 2023. China accounted for $146 billion. Tariffs could cut deeply into profit margins.

A Slowing Juggernaut

Before the selloff in Nvidia stock, it was priced for perfection, but even now NVDA is still expensive. Shares go for 46 times trailing earnings, 25 times sales, and 50 times the free cash flow it produces.

Although sales are still growing, and reports have it that inventory on its newest Blackwell accelerators are sold out through the end of 2025, the rate of Nvidia's growth is slowing.

No one can expect a company to keep growing sales at triple-digit rates and in the third quarter they slipped to 94%. Nvidia guided coming Q4 revenue would rise 70%. We're likely to see that sort of deceleration continue.

Nvidia is also having ongoing issues with its Blackwell chips overheating. It was supposed to have fixed the problem last year, which is why they were delayed until now. But hyperscalers are reportedly pausing or cutting their purchases.

Key Takeaway

I still expect Nvidia to have a strong Q4 when it reports on Feb. 26. But at its still elevated value and with so much uncertainty swirling in the market. I wouldn't be a buyer until more clarity is reached.

There remains a long road of growth ahead for the chipmaker, but investors will probably be able to buy in at a better price soon.

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