Nvidia Faces Crossroads: Nvidia Corporation (NVDA.O) witnessed a roughly 5% decline in its stock value, reaching a nearly five-month low. This dip followed a report from The Wall Street Journal indicating that the artificial intelligence (AI) giant might be compelled to cancel around $5 billion worth of advanced chip orders destined for China in compliance with new U.S. government restrictions.
Last week, Nvidia received notification that its AI chip orders, slated for delivery to major Chinese technology firms in the coming year, including industry giants like Alibaba Group (9988.HK), ByteDance (owner of TikTok), and Baidu (9888.HK), were now subject to the latest export constraints imposed by the U.S. Commerce Department.
This news sent Nvidia’s stock tumbling to as low as $392.30, marking a 4.7% decrease and marking its lowest level since mid-June. The stock, which had been a key contributor to the Nasdaq index’s 22% gain earlier this year, has now fallen by nearly 20% from its record high close of $493.55 on August 31. At the time of reporting, it was down by 2.09%.
Tom Plumb, Chief Executive and Lead Portfolio Manager at Plumb Funds, which holds Nvidia as one of its significant investments, noted, “The stock is getting oversold.” He emphasized that Nvidia had previously stated that the impact would be more long-term than short-term, and he still expected a robust quarter, considering it a strong long-term investment despite the current volatility.
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A spokesperson for Nvidia affirmed the “high demand” for its advanced chips, which often require substantial lead time for production, and stated that they are working on allocating orders to a “wide range of customers” in the United States and other markets. The spokesperson further assured that the new export controls would not have a substantial immediate impact.
Earlier this month, the Biden administration imposed export restrictions on shipments of AI chips developed by Nvidia and other companies to China. This move was aimed at preventing Beijing from acquiring cutting-edge U.S. technologies that could enhance its military capabilities. The new rules are set to go into effect in November and also encompass export controls to other countries, including Iran and Russia.
Thomas Hayes, Chairman at Great Hill Capital in New York, remarked, “I think Nvidia is priced for perfection and any deviation can have a major impact when you have a stock that is trading at 20 times sales and 40 times earnings.” This underscores the high expectations and potential consequences in a market where such valuations can lead to notable fluctuations.