In mid-September, Nvidia investors seemed to have made a smart move, witnessing their stock surge by 14% over 15 trading days. However, their fortunes took a nosedive this week as shares plummeted nearly 9% in what turned out to be the worst five-day stretch in over a year. The sudden downturn was instigated by new U.S. regulations aimed at restricting the export of cutting-edge technology to China, a development that puts at risk a significant portion of Nvidia’s revenue, which constituted one-fifth of its earnings in the last quarter.
This turn of events serves as a stark reminder that, despite the buzz around Nvidia’s position as a major beneficiary of the artificial intelligence (AI) boom, the company’s immediate future is entwined with the global political struggles over semiconductor technology, which underpin nearly every facet of the modern world. Furthermore, it’s important to note that Nvidia isn’t impervious to the impacts of rising interest rates and the economic concerns that are currently weighing on financial markets.
Alec Young, the Chief Investment Strategist at Mapsignals, points out, “It’s certainly at a vulnerable point, but you could’ve said that the last two times that it went down here after that big upside move.”
Earlier this year, Nvidia surged to the forefront of the performance charts after it announced a sales forecast that exceeded analysts’ expectations, cementing its status as a primary beneficiary of the AI revolution. This remarkable achievement pushed Nvidia’s market capitalization within striking distance of the trillion-dollar mark, a milestone it achieved in June. Its next earnings report in August again exceeded expectations, propelling its shares to an all-time high.
However, post reaching this peak, Nvidia’s performance has been more volatile. In September, its stock saw a 12% decline, marking its worst monthly performance in 2023, primarily due to concerns about the sustainability of demand.
Despite this setback, Nvidia’s stock is still up more than 180% for the year, making it the top performer on both the S&P 500 Index and Nasdaq 100. Nevertheless, nearly $200 billion in market value has vanished between the end of August and the most recent closing prices. Nvidia is set to report earnings on November 21.
Even in the face of these challenges, most Wall Street analysts remain bullish on Nvidia. While some have adjusted their price targets, data from Bloomberg shows that 95% of analysts have a buy-equivalent rating on the company.
Citi, for instance, lowered its price target from $630 to $575 while maintaining its buy rating. Similarly, Morgan Stanley analysts, who suggested buying the stock during its September dip, retained their overweight rating but trimmed their price target from $630 to $600.
According to Joseph Moore, the lead analyst at Morgan Stanley, “This is a significant setback, but business is likely to continue to exceed expectations despite that.” He went on to emphasize that Nvidia remains their top pick in the semiconductor sector.
For Michael Sansoterra, Chief Investment Officer at Silvant Capital Management, the recent export restrictions for China shipments do little to dent Nvidia’s long-term appeal. He acknowledges that there might be some unpleasant stock volatility but adds, “We like Nvidia in our portfolio, and we see value when it pulls back.”
