Nvidia shares fall on potential cancellation of China chip orders

Last week, Nvidia was informed that AI chip orders scheduled for delivery next year to major Chinese tech firms, including Alibaba Group (NYSE:BABA), TikTok owner ByteDance, and Baidu (NASDAQ:BIDU), could be subject to the latest export restrictions announced by the U.S. Department of Commerce. This information was reported by the Wall Street Journal, citing sources familiar with the matter.

Nvidia shares dropped as much as 4.7% to $392.30, marking their lowest level since mid-June. The stock, a significant contributor to the Nasdaq's gains, is currently down about 20% from its record closing high of $493.55 reached on August 31.

Tom Plumb, CEO and lead portfolio manager at Plumb Funds, which holds Nvidia as one of its largest assets, said the stock was oversold. Although Nvidia had previously stated that these developments would not have a short-term impact, they could potentially affect the long term. Plumb Funds still expects a strong quarter and views Nvidia as a great long-term holding, but is not adding new positions due to the volatility.

A spokesperson for Nvidia stated that there is high demand for its advanced chips and that they typically require significant lead time to produce. The company is working to allocate orders to its broad range of customers in the U.S. and other countries. The spokesperson also noted that the new export controls would not have a meaningful impact in the near term.

Earlier this month, the Biden administration imposed export restrictions on shipments to China of more AI chips designed by Nvidia and others. The move aims to prevent Beijing from acquiring the latest U.S. technology that could strengthen its military.

The new regulations, which also include export controls targeting countries such as Iran and Russia, are scheduled to take effect in November.

Thomas Hayes, chairman of Great Hill Capital in New York, suggested that Nvidia is priced for perfection and that any deviation could have a significant impact while the stock trades at 20 times sales and 40 times earnings.

News Source: 12punto