After hitting a market capitalization of more than $1.2 trillion in late August, Nvidia (NASDAQ:NVDA) has felt the macro pressure many stocks in the market have. This company briefly fell out of the $1 trillion club during today’s trading session. NVDA stock is still in the red for the day and fighting to stay just a hair above the $1 trillion market capitalization mark at the time of writing.
Now, that valuation is nothing to scoff at, particularly when one considers where Nvidia started the year. Indeed, the 170% move higher NVDA stock has made on a year-to-date basis alone is incredible, particularly for a company of its size. Intense enthusiasm around the company’s high-performance chips, given the surge of interest around artificial intelligence (AI) technology and machine learning capabilities (being incorporated by seemingly every company out there), has led to this surging valuation.
However, today’s decline of more than 1.2% in NVDA stock appears to be tied to more than simply anxiety over the upcoming Federal Reserve interest rate decision and overall macro pressures. News that the company may lose $5 billion in orders from Chinese high-performance chip orders for 2024 has led this stock lower in today’s session.
Let’s dive into what investors may want to make of this news.
NVDA Stock Sinks on Canceled China Orders
Most Nvidia investors are already aware that the U.S. government’s crackdown on high-performance chips used for AI technology and other applications, which could have national security implications, is underway. Specifically, the U.S. had previously ordered that Nvidia and other suppliers of such chips conclude shipping orders by mid-November.
This deadline led many Chinese companies to place heavy orders for Nvidia’s chips in an effort to get these out the door before the ban officially took hold. However, the U.S. government reportedly told Nvidia via letter last week that “the new export restrictions on the sale of high-end chips to countries including China were instead effective immediately.”
That’s a big hit for Nvidia, with some analysts suggesting roughly $5 billion of orders are now effectively canceled, a number that should be material for Nvidia’s next quarterly report. Moving forward, investors and analysts will need to revise their models to exclude sensitive markets included in this chip ban, something that many fear will drive lower valuation multiples moving forward.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
