Nvidia's 'China Syndrome': Is the stock melting?

Like the nuclear reactor in the 1979 movie “The China Syndrome,” Nvidia Corp.’s stock price and sales forecast. have melted, and the ban on the sale of artificial intelligence chips in China is the latest to add to the temperature.


shares hit a new 52-week low on Thursday, falling as much as 12% before closing down 7.7% at $139.37, the seventh daily drop of more than 7% that the stock has suffered so far this year. The stock has fallen 22.2% overall over the past five trading sessions, its worst five-day stretch since Nov. 23, 2018, when the stock fell 28.4% over five sessions, according to Dow Jones data.

With a sharp 52.6% decline, Nvidia is the worst-performing chip company for 2022 of the 30 that make up the PHLX Semiconductor Index
which is down 33.5% for the year. By comparison, the S&P 500 index

is down 17%, and the Nasdaq Composite technology index

decreased by 24.7%.

The move in Nvidia shares on Thursday arrived after the chip maker disclosed in a Declaration to the Securities and Exchange Commission late Wednesday that US regulators are imposing “a new license requirement, effective immediately, on any future exports to China (including Hong Kong) and Russia of the company’s A100 and upcoming H100 ICs.” DGX or any other systems that include A100 or H100 and A100X ICs are also covered by the new license requirement.’

Full news: Shares of Nvidia fell after the US moved to limit sales of data centers in China

Analysts have already debated whether Nvidia is aware after the chip maker cut its outlook for no firstnot for secondlybut for third time for so many months. Now, for the fourth time this year, Nvidia is suggesting to analysts that the revenue forecast could still be off.

The short-term effect: An estimated $400 million in expected revenue from China for the third quarter could be at risk. At last check, analysts polled by FactSet were forecasting annual revenue on average of $28.09 billion, far from an estimate of $33.35 billion at the end of July and an estimate of $34.54 billion at the end of February. Analysts are now being forced to consider whether they should cut their targets again.

Read: Chip stocks could fall another 25% as ‘we enter worst semiconductor decline in decade’, analyst says

“We feel it’s reasonable to remove the impacted China revenue from our Nvidia numbers,” Bernstein analyst Stacey Rasgon said in a note titled “China Syndrome?”

“The China Syndrome” depicts a nuclear reactor that will theoretically start burning its way to the other side of the earth, ie. China. The previously little-known term quickly made its way into the American lexicon when the film debuted on March 16, 1979. less than two weeks before the accident at the Three Mile Island nuclear power plant near Middletown, Pennsylvania.

Rasgon acknowledged that the company is working on alternatives and has expressed interest in licensing for non-military customers, but said the timing and impact of those remedies, however, are unclear. The new cut “is not trivial but it is not an insurmountable blow, although of course it is clearly a growing negative as the business could be permanently damaged,” he said.

Rasgon also noted that some of Advanced Micro Devices Inc

GPUs will also be affected by the ban. “However, AMD’s data center GPU sales are small and they do not foresee any significant impact on their business at this time,” Rasgon said. He has outperforms on both stocks with price targets of $180 for Nvidia and $135 for AMD.

However, the effects of the ban may continue beyond the current quarter. Morgan Stanley analyst Joseph Moore said he expects regulators to take 18 to 24 months to determine the total scope of products affected by the ban, and Nvidia will lose at least $2 billion in revenue in 2023 based on the known restrictions, even and with a forecast of weak demand for data centers from China.

“We don’t know the broader ramifications of the restrictions, but the specific restrictions on the A100 and H100 (primarily training products introduced in the last 3 years) would suggest that this is affecting new products,” wrote Moore, who has a built-in rating and target price of $182 on Nvidia. “We would assume that this is an AI-related limitation, so we wouldn’t expect ramifications for non-AI chips, but we don’t know if the limitation is just GPUs, versus custom AI ASICs, or dedicated chips like Intel’s

Habana processors.

In depth: Chip stocks fell as pandemic demand for electronics fell, but there were still some winners

Restrictions can also cause problems outside of Nvidia. Citi Research analyst Atif Malik wrote that “we see escalating U.S. semiconductor restrictions in China and increased volatility for the semiconductor and equipment group,” while removing Nvidia from the firm’s positive “catalyst watch” that was just introduced in Friday.

Mizuho analyst Jordan Klein said he felt “negativity will be widespread in the Semis about what restrictions might come next.”

All of this is ahead of Nvidia’s big one GTC conference starting September 19thwhere the company is expected to unveil its next-generation ‘Lovelace’ chip architecture to replace the now two-year-old ‘Ampere’ architecture during a consumer technology downturn. Actually, Nvidia is recent $1.22 billion stock charge went to clear out a lot of that old inventory before the release of Lovelace.

Nvidia shares were also the most actively traded in the S&P 500 index

on preliminary volume of 117.3 million shares, with AMD shares in second place with more than 94.5 million shares. Nvidia’s 52-week average daily volume is 49 million, while AMD’s is around 83 million.

Out of 44 analysts covering Nvidia, 35 have a buy rating, eight have a sell rating and one has a sell rating. Of those, six cut their price targets on the stock, resulting in an average price target of $210, down from $237.50 a month ago.

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