While the rest of the technology sector is down today, shares of graphics chipmaker Nvidia (NASDAQ:NVDA) are up 0.6% as of 2:09 p.m. ET after a 2% rally in early trade.
After a disastrous month when multiple new headwinds came to the fore, Nvidia has recovered. The companys graphics business is significantly declining due to bitcoin mining and PC demand, leading to weaker-than-expected guidance during the August earnings call. The fact that the Biden administration has restricted Nvidias ability to export its high-end data center chips to China is salt in an already open wound.
Nvidia stock price dropped significantly yesterday, but the company is trying to recover today on speculations that it will try to fulfill data center GPU chip orders from Chinese customers before the ban goes into effect.
Whats the Reason?
Nvidia reportedly ordered its foundry partner Taiwan Semiconductor Manufacturing (TSM), to speed up manufacturing of A100 and H100 chips so that it can sell these profitable high-end chips to Chinese customers before the limits take effect, according to the Taiwanese business daily UDN.
Whether Nvidia (NASDAQ:NVDA) will sell to Chinese clients directly or through other non-Chinese companies with operations in China and how much Nvidia could ship before the ban takes effect are also open questions. The study suggests that specific customers buffer period for the A100 might go as far out as March 2023 and that for the H100, it could go as far out as September 2023.
Considering that Nvidia (NASDAQ:NVDA) has predicted that the limits might affect up to $400 million of revenue in the current quarter alone, a one-year buffer could undoubtedly assist. Chinese businesses that could have delayed purchasing due to the weak economy may be making hasty commitments because of the impending prohibition, which needs an export license to transport high-end GPUs to data center customers. If these orders materialize, they could help offset the current weak demand Nvidia sees.
Its possible that Nvidias data center income wont be hit as hard as the $400 million number stated on August 31 due to the buffer time and the rush of orders.
Warren Buffett famously said, When a fantastic business experiences momentary difficulties, its the ideal possible situation for us. Wed like to make our purchase while theyre under the knife.
Nvidia (NASDAQ:NVDA) may not be on the operating table since it still trades at a healthy 35 times earnings. Despite this, it is undeniably a terrific firm that has been highly underestimated due to the stock dropping 55% year-to-date despite its technological superiority in semiconductors that enable artificial intelligence.
While its earlier value is open to debate, Nvidia stock recent struggles may present an excellent investment opportunity for long-term investors. Thats especially true if the present downturn doesnt continue longer than a few quarters and if export restrictions dont prove to be as much of a drag as some predict.
Featured Image – Megapixl (C) Herminutomo
Author: Shariq Khan
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