Nvidia (NASDAQ:NVDA), which has been the top-performing stock in the S&P 500 this year, faced a setback in trading due to the Biden administration’s announcement to halt semiconductor shipments to China. The question arises: is this sell-off an opportunity to buy Nvidia shares at a discount?
Despite a nearly four-month consolidation period, Nvidia continues to be a strong performer. It recently broke out from a descending wedge pattern, which suggests it might be in the midst of a buyable pullback. Additionally, Nvidia holds a Zacks Rank #1 (Strong Buy) rating, which reflects positive earnings revisions and boosts near-term stock performance expectations.
With a critical support level of $400, the current situation presents a potentially attractive buying opportunity with a favorable risk-reward setup.
Biden’s Semiconductor Restrictions
The Biden administration’s decision to halt shipments of advanced artificial intelligence chips, including those designed by Nvidia, to China is part of a broader effort to restrict China’s access to advanced U.S. technology that could enhance its military capabilities. These new regulations will also limit the export of advanced chips and chipmaking tools to countries like Iran and Russia.
Nvidia, as a leading AI chip designer, has reported its compliance with the new regulations and does not anticipate an immediate significant financial impact. However, the stock experienced a 5% drop, and other chipmakers, such as Advanced Micro Devices (NASDAQ:AMD) and Intel (NASDAQ:INTC), also saw declines.
Nvidia’s Leadership in the Industry
Nvidia has gained a competitive edge in the industry by releasing its Artificial Intelligence infrastructure products earlier this year. It has outperformed competitors like Intel and Advanced Micro Devices and is now years ahead in terms of AI hardware and software.
Intel, despite recent struggles, has received some earnings estimate upgrades, leading to a Buy rating. In contrast, AMD has not convinced analysts to revise its earnings higher, resulting in a Hold rating, indicating mixed earnings revisions.
While the recent news may have shaken some traders, Nvidia still appears attractive at its current levels. Additionally, with the final quarter of the year historically exhibiting strong bullish tendencies, there may be potential for the market’s leading name to finish the year on a positive note.
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