What Happened: Shares of leading graphics chip designer Nvidia (NASDAQ:NVDA) fell 6.78% in the morning session after the U.S. Department of Commerce issued stricter regulations for advanced semiconductor chip exports into China. The new rules target chips used in data center AI applications (like GPUs) and impact NVIDIA's A800, H800, and L40S product lines. NVIDIA intends to comply with the regulations and anticipates a limited short-term impact. Buyer interest in these products is high, and it should be able to backfill demand from the rest of the world. Over the long term, however, replacing China as a customer will be challenging - the country currently represents 20-25% of NVIDIA's data center revenues.
Double-clicking into the mechanics of the regulation, the U.S.'s goal is to limit China's access to high-performance computing resources. This motive is implied in its added restriction on chips exceeding a certain level of performance density. Furthermore, licensing requirements have expanded to include 40+ countries at risk of diverting chips to China, including entities with Chinese parent companies, and 21 countries for chipmaking tools sold to China. This measure seeks to prevent China from piecing together disparate chips from other players to copy U.S. chip technology (and thereby working around the regulation).
We note that consumer-oriented chips used in laptops, smartphones, and gaming are exempt from these restrictions.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Nvidia? Find out by reading the original article on StockStory.
What is the market telling us: Nvidia's shares are very volatile and over the last year have had 22 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The biggest move we wrote about over the last year was 5 months ago, when the company gained 23.7% on the news that the company delivered an exceptional quarter that topped analysts' estimates across key metrics. Revenue surpassed expectations by an impressive 10.3%, driven by strong data center revenue. Notably, the company improved profitability, with both gross margin and operating margin outperforming expectations. Earnings per share (EPS) beat by an impressive 18.8%. Inventory levels experienced a nice decrease during the quarter. In addition to the outstanding quarterly results, the revenue guidance for the next quarter surpassed expectations by over 50%. Yes, that's not a typo. Similarly, the operating profit guidance exceeded Consensus estimates meaningfully. Founder and CEO Jensen Huang emphasized the ongoing transformations in the computer industry, particularly the advancements in accelerated computing and generative AI. He highlighted Nvidia's readiness to seize the opportunities presented by the anticipated trillion-dollar shift in global data center infrastructure from general-purpose to accelerated computing, as firms implement generative AI into their business operations. Overall, the company's blowout quarter, with its impressive revenue growth, enhanced profitability, and positive guidance, underscored its strength in the market. Nothing in this world is perfect, but this was a near-perfect quarter.
Nvidia is up 211% since the beginning of the year, but at $444.35 per share it is still trading 9.97% below its 52-week high of $493.55 from August 2023. Investors who bought $1,000 worth of Nvidia's shares 5 years ago would now be looking at an investment worth $7.32 thousand.
