Three reasons why Nvidia is underperforming the S&P 500 going into its earnings

Nvidia (NVDA) investors are navigating through an un-Nvidia-like start to the year.

Shares of the AI chip darling are off by 3.3% this year, lagging all three major US indices, which have notched gains. The stock has underperformed the S&P 500 (^GSPC) by 9% in the past month.

Ahead of Nvidia’s results expected on Feb. 26, the Street has been out and about explaining the surprising weakness to clients and mostly defending the stock.

In a note on Monday, EvercoreISI analyst Mark Lipacis points to three reasons for the weakness after talking with clients. They include: 1) DeepSeek lowers AI demand in aggregate, 2) DeepSeek shifts AI compute-cycles away from Nvidia GPUs and to ASICs [custom chips], and 3) Blackwell chip delays.

Despite the concerns, Lipacis says he would be a buyer of the stock into Nvidia’s earnings. The analyst reiterated an Out-perform rating and $190 price target.

“Nvidia remains the platform of choice for hyperscalers’ customers. The robustness of its software ecosystem and breadth of its development community put it 5-10 years ahead of anything else in the market. AMD (AMD) and Amazon (AMZN) AWS ecosystems are a distant #2 and #3,” Lipacis explained.

The concerns about Nvidia aren’t unfounded, however.

China-based DeepSeek surprised markets in late January after unveiling RI, its AI model that its says gives a ChatGPT-esque performance at a cheaper price tag. RI cost a reported $5.6 million to build a base model, compared with the hundreds of millions of dollars incurred at US-based companies such as OpenAI and Anthropic.

Fears mounted instantly that US companies are overspending on AI infrastructure, which includes Nvidia chips.

“Conventional wisdom all of last year was that training amazing models was going to be possible for only a handful of companies,” Snowflake CEO Sridhar Ramaswamy told me on Yahoo Finance’s Opening Bid podcast. “What DeepSeek has done over the past few weeks is shatter that belief by saying they can train a model for $6 million.”

Meanwhile, Amazon has announced an $8 billion partnership with Anthropic to enter the AI chip space, and Google (GOOG) has dropped a supercomputer with an AI chip called Willow. With those moves, it’s evident Big Tech companies want in on Nvidia’s hefty market share. What’s more, Broadcom (AVGO) and Marvell (MRVL) have released advanced custom chips.

Watch: what Bill Gates thought of Steve Jobs

Lipacis isn’t alone in staying bullish on Nvidia into its earnings, despite less-than-favorable news flow this year. Bank of America’s Vivek Arya reiterated the chipmaker as his top pick for 2025 last wee.

Story Continues