Nvidia will release third-quarter earnings as investors look for signs of vulnerability stemming from a ban on exports of certain highly advanced chips to China.
We can expect all eyes to be on the tech giant Tuesday after market close when they report their most recent earnings, looking for any indication of how the new U.S. policy might be affecting its business and listening for any hint on the matter from executives during that afternoon earning call.
“With China tightening regulations and cracking down on various industries, including technology, the company may face headwinds in this critical market,” says Nigel Green, CEO and founder of deVere advisory group. Green, who has a hold rating on Nvidia’s stock, said that geopolitical tensions could impact the company’s ability to sustain its mighty results.
China has been one of Nvidia’s biggest customers and has held over a 90% share of China’s $7 billion AI chip market. The latest U.S. export restrictions on high-end chips to China could put $5 billion worth of orders at risk, according to a report by The Wall Street Journal.
Chipmaker Nvidia has been the standout performer among S&P 500 companies this year, with its shares more than tripling in value and its market value surging above $1 trillion. The S&P 500 has had an 18% rise over the same period. Nvidia’s stock closed Monday at a record high of $504.09
With Nvidia’s gamble on AI technology paying off substantially this year since Open AI’s ChatGPT was released to the masses, Nvidia has become the world’s primary and most sought-after chip provider for AI-hungry businesses racing to implement the technology for themselves. New federal regulations effectively banning exports of Nvidia’s most advanced chips have raised caution in some investors who think the loss of revenue could have greater implications for the company in the future.
Wall Street analysts are forecasting total sales to increase 22% from a year earlier to $16.2 billion and earnings per share of $3.37 for the third quarter ended October 29, 2023, compared with earnings of $0.58 per share in the same quarter of the previous year.
Aimed at cutting China off from obtaining or manufacturing key chips and components for supercomputers, the U.S. hopes the export ban will curtail its primary economic competitor from advances in AI.
If Nvidia’s concerned with the ban, they’re hiding it pretty well and, in response, have announced an alternative chip for China called the A800, which is essentially the same as the banned A100 chip, except its high-speed interconnectivity has been limited.
“While China restrictions are a concern, the recent reaction to the latest round of news was overdone since the China risk wasn’t necessarily new since there have been [chip] restrictions in place since 2022,” says Ben Reitzes, a semiconductor analyst with Melius Research. “While there could be some near-term upside curtailed from China-specific products being pulled at quarter-end and into 2024, we see sales upside in the 2024 fiscal year from other buyers.”