Santa Clara, California – Nvidia stock (NVDA) experienced a 2.8% decrease in premarket trading on Monday as investors digested reports of Chinese regulators advising local companies against purchasing Nvidia’s artificial intelligence chips. The stock later recovered slightly, dropping 1.4% to approximately $120 after trading hours. Bloomberg revealed that Beijing is encouraging Chinese companies to prioritize chipmakers within China, rather than Nvidia, amidst escalating trade tensions with the US. Nvidia’s shares closed down 2.2% at $121 following the news, with further losses seen on Monday. In contrast, Chinese AI chipmaker Cambricon Technologies (688256.SS) saw a 20% increase in Monday trading.
The PHLX Semiconductor Index (^SOX) also took a hit, decreasing 1.2% early on Monday. Competitor Advanced Micro Devices (AMD) experienced a modest 0.6% decrease, trading at around $163, while Qualcomm (QCOM) remained stable. Intel (INTC), on the other hand, fell nearly 2% to approximately $23, and Micron (MU), a memory chipmaker and Nvidia partner, fell 3.4% to about $104.
In response to stricter export controls on AI chips to China, Nvidia has faced challenges in maintaining its market presence in the country. Sales to China accounted for 14% of data center revenue in the fiscal year ending on Jan. 28, 2024, down from 19% the previous year. To work around these challenges, Nvidia has developed specific chip versions compliant with the regulations, such as the “H20” Hopper chips for China, which are projected to bring in $12 billion in revenue this year. A new version of its Blackwell chip, the “B20,” is also in the works for the Chinese market.
Despite the turbulence in the semiconductor industry, analysts remain optimistic about Nvidia’s future performance. With the stock up 144% since the beginning of the year, approximately 90% of Wall Street analysts recommend buying Nvidia shares, with a projected price target of $147.61 over the next year. Daniel Newman, CEO of the Futurum Group, highlighted strong leadership in the semiconductor sector and the potential for growth despite recent volatility in Nvidia’s stock following a stock split in June. Revenue from sales in China has been on an upward trend in recent quarters, totaling around $3.7 billion in the quarter ending on July 28, a 33.8% increase year-over-year.
As Nvidia navigates challenges in the global market, the company’s ability to adapt and innovate will be crucial in maintaining its position as a leading player in the semiconductor industry. With a focus on developing tailored solutions for specific markets, particularly in China, Nvidia aims to overcome regulatory hurdles and capitalize on emerging opportunities in the AI chip sector.