For all the good news it has seen recently, Nvidia (NASDAQ:NVDA) is facing a new challenge. Chipmakers require a specific license to send large-scale artificial intelligence (AI) accelerators to customers in the Middle East. But U.S. officials have slowed the issuing of all such documents while they conduct a “national security review of AI development in the region.” This news is pushing NVDA stock down today, and things aren’t looking good for its competitors, such as Advanced Micro Devices (NSYE:AMD), either. This raises some questions about the future of the chip making industry, especially as fears abound of the companies losing parts of their market share.
Does this mean that investors should approach NVDA stock with caution as this matter progresses? Let’s take a closer look at this news and assess what it is likely to mean for Nvidia and its peers.
What’s Happening With NVDA Stock
Investors have plenty of reasons to be optimistic about Nvidia stock right now. The company just reported Q1 earnings and blew past Wall Street estimates on both revenue and earnings-per-share (EPS). It is also preparing for a 10-for-1 stock split, scheduled to take effect on June 10. The combination of these two positive catalysts sent NVDA stock surging last week. But now it looks poised to end today in the red unless shares turn around quickly.
Right now, there are plenty of questions regarding the Middle East licensing delay and very few answers. That’s likely what’s pushing NVDA stock down, as Wall Street hates uncertainty, and exact details may not be revealed any time soon. As Bloomberg reports:
“It’s unclear how long the review will take, nor is there a concrete definition of what constitutes a large shipment, said the people, who asked not to be identified because the discussions are private. Officials are particularly focused on high-volume sales, the people said, as countries including the United Arab Emirates and Saudi Arabia look to import massive quantities of the chips used in AI data centers.”
Nvidia is credited with pioneering the AI accelerator. These devices are a key component of the fast-growing data center market. But more than that, they are critical to any company seeking to develop its own AI infrastructure — these days, that’s just about everyone in the tech space. The demand for its innovative products has helped Nvidia rise to the front of the AI arms race.
But now its global dominance may be threatened if the review drags out long enough for Middle East buyers to turn to other suppliers.
Why It Matters
Granted, it will take a lot to pose a serious threat to a company as strong as Nvidia. The AI leader has enjoyed an excellent year, rising more than 130% over the past six months. Wall Street analysts love NVDA stock. Out of 40 polled experts, 37 rate it as a buy and
predict it will continue rising, with the upcoming stock split only helping matters.
However, that doesn’t mean that the licensing delays should be disregarded as insignificant. It is difficult to predict exactly how much they could hurt Nvidia and its peers, but much will depend on how quickly the review moves along and what it reveals upon conclusion.
On the date of publication, Samuel O’Brient 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.
