Nvidia shares drop as China worries overshadow stellar forecast

4:19 PM UTC – November 22, 2023

(Reuters) – Nvidia (NVDA.O) shares fell nearly 4% on Wednesday on fears that widening U.S. chip curbs would sap growth in China, its third largest market, and curtail the AI-driven boom in its business.

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The company was set to erase more than $40 billion in market capitalization if losses hold, based on its current share price of $482.20.

Nvidia, which has been at the forefront of artificial intelligence developments with its tailor-made graphics processing units, said its China business will take a hit from tighter export controls.

Still, it forecast current-quarter revenue of $20 billion, plus or minus 2%, beating analysts’ average estimate by more than $2 billion, according to LSEG data.

China contributed more than a fifth of its total revenue in the quarter ended Oct. 29.

“This disconnect between stellar earnings and an uncertain future in China is causing investor concern,” said Scott Acheychek, CEO of REX Shares, which offers a fund linked to Nvidia shares.

Nvidia has been one of the biggest beneficiaries of a rally in AI-linked stocks, with its shares gaining 229.8% compared to tech-heavy Nasdaq’s (.IXIC) 36.6% rise so far this year.

“Nvidia’s shares went into the results ‘priced to perfection’….compounded by a run-up to record highs going into the release,” said Capital.com analyst Kyle Rodda.

“As a result, despite fantastic financial performance and an even better outlook than analysts had been expecting, any bad news was bound to undermine sentiment.”

At least seven brokerages raised their target price for the stock with the median now at $625, more than $125 above its last closing price, signaling confidence that the business would grow as businesses adopt AI.

“Looking further out, NVDA continues to expect Data Center segment growth in 2025 and has plans to increase supply on a quarterly basis,” brokerage Stifel said in note.

Reporting by Arsheeya Bajwa and Chavi Mehta in Bengaluru; Editing by Arun Koyyur

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