Nvidia’s stock falls due to China concerns despite strong outlook
Stock Market News
4:19 PM UTC – November 22, 2023
(Reuters) – Nvidia (NVDA.O) shares fell nearly 4% on Wednesday on fears that widening U.S. chip curbs would sap growth in China, its third largest market, and curtail the AI-driven boom in its business.
The company was set to erase more than $40 billion in market capitalization if losses hold, based on its current share price of $482.20.
Nvidia, which has been at the forefront of artificial intelligence developments with its tailor-made graphics processing units, said its China business will take a hit from tighter export controls.
Still, it forecast current-quarter revenue of $20 billion, plus or minus 2%, beating analysts’ average estimate by more than $2 billion, according to LSEG data.
China contributed more than a fifth of its total revenue in the quarter ended Oct. 29.
“This disconnect between stellar earnings and an uncertain future in China is causing investor concern,” said Scott Acheychek, CEO of REX Shares, which offers a fund linked to Nvidia shares.
Nvidia has been one of the biggest beneficiaries of a rally in AI-linked stocks, with its shares gaining 229.8% compared to tech-heavy Nasdaq’s (.IXIC) 36.6% rise so far this year.
“Nvidia’s shares went into the results ‘priced to perfection’….compounded by a run-up to record highs going into the release,” said Capital.com analyst Kyle Rodda.
“As a result, despite fantastic financial performance and an even better outlook than analysts had been expecting, any bad news was bound to undermine sentiment.”
At least seven brokerages raised their target price for the stock with the median now at $625, more than $125 above its last closing price, signaling confidence that the business would grow as businesses adopt AI.
“Looking further out, NVDA continues to expect Data Center segment growth in 2025 and has plans to increase supply on a quarterly basis,” brokerage Stifel said in note.
Reporting by Arsheeya Bajwa and Chavi Mehta in Bengaluru; Editing by Arun Koyyur
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What is the potential impact of the export controls on Nvidia’s ability to do business in China and its revenue from this market?
The earnings announcement, any negative news was likely to result in a sell-off,” said Neil Campling, analyst at investment bank Mirabaud Securities.
The concerns about Nvidia’s performance in China come as the U.S. government tightens restrictions on the export of technology to certain Chinese companies, including those involved in the production of semiconductors, due to national security concerns. These restrictions could have a significant impact on Nvidia’s ability to do business in China, as the country has become a major market for its products.
Nvidia’s graphics processing units (GPUs) are widely used in data centers and gaming consoles, but they also play a crucial role in artificial intelligence (AI) applications. As China invests heavily in AI technology, the demand for Nvidia’s GPUs has been strong. However, the new export controls could limit Nvidia’s ability to supply its products to Chinese companies, thereby affecting its revenue from this important market.
Despite the concerns, Nvidia remains optimistic about its future performance. The company has forecasted revenue of $20 billion for the current quarter, surpassing analysts’ expectations. This positive outlook is supported by the continued growth in demand for AI-related technologies and Nvidia’s strong position in the market.
However, investors are cautious about the potential impact of the export controls on Nvidia’s business in China. The uncertainty surrounding the situation has led to a sell-off in the company’s shares, causing a decline of nearly 4% in its stock price. If these losses hold, Nvidia could lose more than $40 billion in market capitalization.
Scott Acheychek, CEO of REX Shares, believes that the uncertainty in China is causing investor concern. Despite Nvidia’s impressive earnings, the company’s future in China remains uncertain, and this is reflected in the market reaction.
Nvidia has been one of the top-performing stocks in the AI sector, with its shares gaining 229.8% compared to the Nasdaq’s 36.6% rise this year. However, the recent sell-off shows that investors are cautious about the potential impact of the export controls on the company’s performance.
It remains to be seen how Nvidia will navigate the challenges posed by the tightening U.S. chip curbs and the uncertain business environment in China. However, the company’s strong position in the AI market and its positive revenue forecast provide some optimism for its future performance.
Investors will be closely watching Nvidia’s actions and statements in the coming months as they assess the potential risks and opportunities associated with the company’s business in China. The outcome of these developments could have a significant impact on Nvidia’s stock performance and the broader AI industry as a whole.
As the situation continues to evolve, it is crucial for investors to stay informed and carefully analyze the potential risks and rewards of investing in companies like Nvidia. Keeping a close eye on market trends and developments will be essential for making well-informed investment decisions in the rapidly changing world of AI and technology.
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