Nvidia’s stock experienced declines on both Monday and Tuesday, following reports that China’s State Administration for Market Regulation has launched an investigation into its 2020 acquisition of Mellanox Technologies. Although the deal was cleared by Chinese regulators in the past, the decision to revisit the matter has taken investors by surprise. Antitrust reviews can be drawn out for extended periods, causing further uncertainty.
Investors are concerned that if regulatory issues arise, China might impose fines or new operational restrictions. This concern is particularly prevalent in a market where Nvidia is already encountering significant challenges, evidenced by the lack of reported sales for its H20 chips in recent earnings. The ongoing trade limitations have exacerbated the risks posed by regulators, making the situation in China one of Nvidia’s most pressing challenges.
Despite governmental hurdles, Wall Street analysts seem optimistic about Nvidia’s prospects, adjusting their price targets upwards. John Vinh from KeyBanc argues that Nvidia’s CUDA software ecosystem serves as a significant competitive advantage, allowing it to maintain an overweight rating and set a price target of $230. Similarly, William Blair’s Sebastien Naji maintains an outperform rating with a target of $205, suggesting that improved conditions in China could benefit Nvidia in the long run despite current uncertainties.
However, not all analysts share this optimism without reservations. Christopher Rolland from Susquehanna increased his target to $210 but remains wary about the potential impact of revenue from H20 chip sales. Reports indicate that Chinese regulators have questioned Nvidia regarding the tracking capabilities of its chips, a request that has unsettled investors. Although CEO Jensen Huang rejected the notion that such capabilities exist, lingering doubts may affect sales in a crucial market.
Nvidia’s recent quarterly earnings appeared strong, posting a profit of $1.05 per share, surpassing the $1.01 estimate, with sales reaching $46.74 billion. Furthermore, the company’s guidance for the next quarter was pegged at $54 billion, slightly exceeding expectations. A significant $60 billion buyback was also approved, indicating confidence in its valuation, but crucially, none of these results factored in revenue from China, where the company reported zero sales from H20 chips.
As competition heats up, rivals like Broadcom have secured significant chip orders, reinforcing their stance in the AI sector, while Alibaba is developing its in-house AI chip, signalling that major Chinese companies are beginning to consider alternatives to Nvidia. Despite its leadership in the market, Nvidia faces mounting pressure from competitors and must continue to innovate.
Reports suggest that Nvidia is already developing a more powerful chip tailored for the Chinese market, potentially circumventing regulatory challenges. The company has ordered hundreds of thousands of H20 chips through Taiwan Semiconductor, indicating a strategy focused on navigating current regulatory and political hurdles.
From a technical analysis standpoint, Nvidia’s stock is currently testing vital support levels. Shares have fallen to their 50-day moving average, a critical point for traders assessing support or a potential breakdown. The official buy point remains at $184.48, coinciding with the stock’s historical peak. Until Nvidia successfully surpasses this point, many investors may be hesitant to pursue the rally.
Nvidia maintains strong ratings, boasting an exceptional earnings per share rating and a high Composite Rating. However, institutional ownership has decreased to 41%, suggesting that large investors are not aggressively increasing their positions at this moment. Individual investors are now left contemplating whether this dip represents a buying opportunity or a signal to remain cautious.
The outlook for Nvidia is multifaceted; it remains a leader in the AI industry, yet faces significant headwinds from regulatory inquiries, uncertainty surrounding H20 chip sales, and growing competition. Analysts remain overall bullish, yet emphasize the need for caution in their targets.
For investors, the question becomes whether Nvidia can stabilize at current support levels and break through its buy point, which would indicate a continuation of its growth trajectory. Conversely, if regulatory pressures escalate or competitors gain ground, the stock may find itself in a prolonged holding pattern.
Overall, the consensus among Wall Street analysts is bullish, with 35 out of 38 recommending a Buy. With an average 12-month price target of $211.26, there is a projected upside of nearly 19% from the stock’s latest price.
