Fading Nvidia For The Win (Again)

A Double Beat In Q4 Couldn’t Erase The DeepSeek Bombshell In Q1

After Nvidia, Inc. NVDA released earnings Wednesday evening, some observers on X were quick to dismiss the DeepSeek threat.

DeepSeek is clearly the $NVDA killer.

NOT.

😂 pic.twitter.com/Nynm84Vm8e
— From Growth To Value (@FromValue) February 25, 2025

Nvidia claims to have optimized for DeepSeek. However, the reality is most didn’t grok the significance of DeepSeek’s achievement until January. That means its impact on Nvidia’s top and bottom lines hasn’t been felt yet. And Nvidia’s earnings growth rate is already starting to slow. Also, its gross margins are ticking down. Ultimately, those factors seemed to weigh on the stock on Thursday, as Nvidia fell 8.48%.

Our Second Bearish Bet Against Nvidia In As Many Months Cashes

Readers may recall we placed our first bearish bet against Nvidia on January 24th.

In that post alerting subscribers to our trade, we wrote,

Believe it or not, we're betting against Nvidia (NVDA -7.55%↓) here. A Chinese start-up created its own competitor to Open AI's ChatGPT, called DeepSeek, and some of the smartest people in tech, like Steve Hsu and Marc Andreessen are extremely impressed with it. The reason this seems bearish for Nvidia is the Chinese apparently accomplished this with only a few million dollars in capital, meaning they didn't need lots of expensive chips of the sort Nvidia sells. And if they don't need them, maybe everyone else doesn't need so many of them either. We're just looking for a modest short term move down in Nvidia here; we're not betting on the company going bust or anything like that.

Our trade then was buying short term puts on the stock. We sold half of those puts for a 200% profit the same day, and the other half for a 2,633% profit the following Monday.

Puts on Nvidia ( NVDA -7.36%↓ ). Bought for $0.75 on 1/24/2025; sold (half) on the same day for $2.25. Profit: 200%.
Puts on Nvidia ( NVDA -5.78%↓ ). Bought for $0.75 on 1/24/2025; sold (half) for $20.80 on 1/27/25. Profit: 2,633%.

We placed our second and third bearish bets against Nvidia on January 29th.

In that post, we elaborated on why we were bearish on the stock, and explained the timing of our new trades:

In short: The February 2025 call could be the canary in the coal mine, but not the full explosion.

So our plan here is to place a moderately bearish bet on Nvidia expiring at the end of February, and then a more aggressive bearish bet against it expiring in September, after Nvidia's August earnings report.

Our short term bearish bet was a vertical spread expiring on February 28th, buying the $128 strike calls and selling the $127 strike calls for a net credit of $0.76.

Note that it took a few weeks for this trade to fill. It took Nvidia shares bouncing close to $140 on February 18th for us to get a call spread that skewed in our favor. We exited that one on Thursday afternoon, for a gain of 238%.

Call spread on Nvidia (NVDA 0.00%↑). Entered at a net credit of $0.76 on 1/29/2025; exited at a net debit of $0.19 on 2/27/2025. Profit: 238%.

Our Third Bearish Bet Against Nvidia

Our longer term bearish bet against Nvidia is a put spread that will hit its maximum profit if Nvidia is trading below $96 by next September. By then, we will have had two quarters to see the impact of DeepSeek and Chinese chip competition on Nvidia’s sales and earnings.

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