Investors who snapped up shares of Nvidia Corp. at the bottom of last month’s swoon got a harsh reminder of the multiple forces pushing and pulling on the chipmaker’s business prospects.
What looked like a prescient bet in mid-September — the stock surged 14% over 15 trading days — turned sour this week as shares tumbled 8.5% in the worst two-day decline in more than a year. The rout was triggered by new US rules aimed at restricting cutting-edge technology from China, a move that threatens a chunk of the one-fifth of Nvidia’s revenue that came from that country last quarter.
It was another harsh reminder for Nvidia fans that for all the hype around its position as a primary beneficiary of the artificial-intelligence gold rush, the company’s more immediate prospects are at the mercy of the geopolitical struggle over the chips that power virtually every aspect of the modern world. It’s also not immune to rising interest rates and the economic concerns weighing on markets.
“It’s certainly at a vulnerable point,” said Alec Young, chief investment strategist at Mapsignals. “But you could’ve said that the last two times that it went down here after that big upside move.”
Nvidia vaulted to the top of performance charts in May after it gave a sales forecast that shattered analyst expectations and solidified the chipmaker as a main beneficiary of the AI trend. The stock’s record surge put Nvidia’s market capitalization in reach of $1 trillion, a level it surpassed in June. At its next earnings release in August, another blowout report catapulted shares to an all-time high.
Since reaching that peak, performance has been rockier. Shares fell 12% in September, its worst monthly performance in 2023, weighed down by concerns about demand sustainability.
Even though the stock is still up 188% this year and is the top performer on both the S&P 500 Index and Nasdaq 100, about $180 billion in market value has been erased from the end of August through Wednesday’s close. Nvidia is scheduled to report earnings on Nov. 21.
So far, Wall Street analysts haven’t changed their bullish tune on the stock. While some have cut price targets, 95% of analysts have a buy-equivalent rating on Nvidia, according to data compiled by Bloomberg.
Citi lowered its price target to $575 from $630 while keeping its buy rating. Morgan Stanley analysts led by Joseph Moore - who recommended buying the stock in its September dip - maintained their overweight rating but cut their price target to $600 from $630.
“This is a significant setback, but business is likely to continue to exceed expectations despite that,” Moore wrote in a note dated Wednesday, adding that Nvidia is still their top pick in the semiconductor sector.
For Michael Sansoterra, chief investment officer at Silvant Capital Management, the added export restrictions for China shipments hardly dents Nvidia’s long-term appeal.
“You’re going to see some volatility in the stock that’s not pleasant to go through, but it’s also not unexpected,” he said. “We like Nvidia in our portfolio, and we see value when it pulls back.”
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