The stock of Nvidia Corp, the artificial intelligence (AI) giant, plummeted by approximately 5% to a near five-month low following reports of potential order cancellations worth up to $5 billion to major Chinese technology companies. The cancellations are said to be in compliance with new US government restrictions. Nvidia was notified last week that its AI chip orders scheduled for delivery next year to companies such as Alibaba Group, TikTok owner-ByteDance, and Baidu are subject to the latest export restrictions announced by the US Commerce Department.
Impact on Nvidia Stock
Nvidia’s stock fell to as low as $392.30, down 4.7%, which is the lowest level it has reached since mid-June. The stock, which has been a major driver of this year’s 22% gain in the Nasdaq index, is now down nearly 20% from its record high close of $493.55 reached on August 31. However, some experts believe that the stock is getting oversold and that the impact of the export restrictions may be more long-term than short-term. Tom Plumb, the CEO and lead portfolio manager at Plumb Funds, stated that he still expects a strong quarter from Nvidia and considers it a great long-term holding despite the current volatility.
New US Government Export Restrictions
The Biden administration recently imposed export restrictions on shipments of AI chips designed by Nvidia and others to China. The move is aimed at preventing Beijing from acquiring cutting-edge US technologies that could potentially strengthen its military capabilities. These new rules, which go into effect in November, also include export controls to countries such as Iran and Russia.
Nvidia’s Response and Future Outlook
Nvidia has stated that there is “high demand” for its advanced chips, which often require significant lead time to build. The company is working to allocate orders to its wide range of customers in the United States and other countries. Furthermore, Nvidia’s spokesperson has reassured that the new export controls will not have a meaningful impact in the near term.
However, some analysts believe that Nvidia’s stock may be priced too high and that any deviation from perfection could have a major impact. Thomas Hayes, the chairman at Great Hill Capital, stated that when a stock is trading at 20 times sales and 40 times earnings, even a slight stumble can be significant.
Key Takeaways
- Nvidia’s stock dropped by around 5% to a near five-month low following reports of potential order cancellations worth up to $5 billion to major Chinese technology companies.
- The cancellations are in compliance with new US government restrictions on the export of AI chips to China.
- The stock is down nearly 20% from its record high close in August, but some experts believe it is oversold and that the impact may be more long-term than short-term.
- The Biden administration imposed export restrictions on AI chip shipments to China to prevent the country from acquiring advanced US technologies.
- Nvidia has reassured that the new export controls will not have a meaningful impact in the near term.
- Some analysts believe that Nvidia’s stock may be priced too high, which makes it vulnerable to any deviation from perfection.
See first source: Reuters
FAQ
What caused the drop in Nvidia’s stock?
Nvidia Corp’s stock dropped by approximately 5% following reports of potential order cancellations worth up to $5 billion to major Chinese technology companies due to new US government export restrictions.
How significant was the drop in Nvidia’s stock price?
The stock plummeted to a near five-month low of $392.30, which is a 4.7% decrease, marking the lowest level since mid-June.
Who are the Chinese companies affected by the order cancellations?
The major Chinese technology companies affected include Alibaba Group, ByteDance (owner of TikTok), and Baidu.
What are the new US government export restrictions?
The Biden administration imposed export restrictions on shipments of AI chips designed by Nvidia and others to China to prevent Beijing from acquiring cutting-edge US technologies that could potentially strengthen its military capabilities.
When do the new export restrictions go into effect?
The new export restrictions are set to go into effect in November.
What has been Nvidia’s response to the new export restrictions?
Nvidia stated there’s “high demand” for its advanced chips and is working to allocate orders to a wide range of customers in the US and other countries. They also reassured that the export controls will not have a meaningful impact in the near term.
What are some experts saying about Nvidia’s stock and the impact of export restrictions?
Some experts believe the stock is getting oversold and the impact of export restrictions may be more long-term. Tom Plumb expects a strong quarter from Nvidia and considers it a great long-term holding despite the volatility.
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