Chicago, IL – January 28, 2025– Today, Zacks Investment Ideas feature highlights Nvidia NVDA, Vertiv VRT, Vistra VST and DaVita DVA.
Big things happened this weekend.
In a calculated move, a Chinese AI company released its newest large-language model (LLM), on the same day as the presidential inauguration. Though it took a week for most market participants to take notice, all are now paying attention.
DeepSeek, the latest contender in the AI landscape, has made waves by developing an equally powerful algorithm at a fraction of the cost—and it's open-source. The implications of this are quite significant, as is evident from the price action in the markets today. Leading AI stocks such as Nvidia, Vertiv and Vistra are getting slammed in trading today.
While I don't think any of this is a reason to panic, I do think it's possible that the AI narrative is transforming and we are entering a period of higher volatility, at least for the next couple of weeks. I will get into the details about the developments out of China below, but in short, I think it prudent to rotate into some more defensive stocks. One name I am bullish on is DaVita, which boasts a top Zacks Rank and it is showing considerable outperformance today and in recent weeks.
The AI landscape was shaken this week as China's DeepSeek introduced a powerful LLM, despite facing strict semiconductor import restrictions. Remarkably, DeepSeek accomplished this breakthrough with significantly fewer resources—likely somewhere between 5% and 50% of those available to its U.S. competitors.
How did they pull it off? DeepSeek streamlined its design by optimizing low-level code to run close to the hardware and employed an innovative training framework that uses 8-bit numbers (FP8) instead of the standard 32-bit precision. While FP8 sacrifices some precision, it dramatically boosts performance and reduces memory usage, maintaining sufficient accuracy for most AI workloads. This efficiency-first approach offers a cost-effective alternative, potentially disrupting the tremendous demand for Nvidia data center products.
So, is this the end for Nvidia? Probably not, but it does suggest that the astronomical spending on Nvidia AI chips for data center buildouts may slow down—at least in the near term. Investors should brace for potential market volatility in the weeks ahead as the implications of this shift are digested.
Adding to the pressure on AI-related stocks, energy and data center service providers like Vertiv, Vistra, and Constellation Energy Corporation are also facing headwinds. As AI systems become more efficient, energy consumption is expected to decline, potentially dampening demand for the infrastructure that powers AI operations.
As the AI and technology sectors appear poised to take a breather in the coming weeks, the broader market could face some drag. In such an environment, healthcare often stands out as a defensive play, and my top pick in the sector right now is DaVita.
DaVita boasts a trifecta of bullish catalysts that are attracting investors and fueling its rally: a Zacks Rank #1 (Strong Buy) rating, strong price momentum, and an attractive valuation relative to its growth prospects.
Currently, DaVita trades at a forward earnings multiple of 15.2x, which is below the industry average and in line with its 10-year median. Importantly, the company is projected to deliver robust annual earnings growth of 18.25% over the next three to five years. This gives DVA stock a PEG ratio of 0.83, signaling a valuation discount based on its growth potential.
As AI stocks face headwinds from DeepSeek's breakout LLM, defensive plays like DaVita become increasingly attractive. With its top Zacks Rank, strong earnings growth projections, and discounted valuation, DaVita offers a compelling opportunity to rotate into a more stable sector amid market uncertainty. Its steady demand profile and robust fundamentals make it a smart choice for investors seeking to diversify away from the volatility in AI and tech.
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DaVita Inc. (DVA) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
Vistra Corp. (VST) : Free Stock Analysis Report
Vertiv Holdings Co. (VRT) : Free Stock Analysis Report
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