Nvidia Stock Falls on Report of Canceled China Orders Due to US Restrictions

Nvidia Stock

Nvidia Corp  (NASDAQ:NVDA) stock saw a nearly 5% drop to a level not seen in almost five months following reports that the artificial intelligence (AI) giant may have to cancel approximately $5 billion worth of advanced chip orders to China due to new U.S. government restrictions.

Nvidia reportedly received notification last week that AI chip orders set for delivery in the coming year to major Chinese technology firms, including Alibaba Group, ByteDance (the owner of TikTok), and Baidu, would be affected by the latest export restrictions imposed by the U.S. Commerce Department. These details were reported by sources familiar with the matter in The Wall Street Journal.

Nvidia’s stock fell to as low as $392.30, marking a 4.7% decline and reaching its lowest level since mid-June. The stock, which played a substantial role in the Nasdaq index’s 22% gain for the year, is currently down nearly 20% from its record-high close of $493.55 recorded on August 31. At the time of the report, the stock was down by 2.09%.

Tom Plumb, CEO and lead portfolio manager at Plumb Funds, which holds Nvidia as one of its major investments, noted that the stock appears to be oversold. He emphasized that while Nvidia had previously indicated that the new restrictions would have a long-term rather than short-term impact, they still expect a strong quarter and consider Nvidia a valuable long-term holding. However, Plumb mentioned that they are not adding any new positions due to the stock’s current volatility.

A spokesperson for Nvidia stated that there is “high demand” for their advanced chips, which often require a significant lead time for production. The company is actively working on allocating orders to a “wide range of customers” in the United States and other locations. The spokesperson also expressed that the new export controls would not have a significant impact in the near term.

Earlier this month, the Biden administration introduced export restrictions on shipments of AI chips developed by Nvidia and other companies to China. The goal is to prevent Beijing from acquiring cutting-edge U.S. technologies that could enhance its military capabilities. These new rules are set to take effect in November and encompass export controls to countries including Iran and Russia.

Thomas Hayes, chairman at Great Hill Capital in New York, remarked that Nvidia’s stock is trading at high valuations and any deviation from its positive trajectory can have a significant impact, especially when a stock is trading at 20 times sales and 40 times earnings.

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