Nvidia (NVDA, Financial) shares dipped 3% in pre-trading on Monday, which would technically put them on the cusp of entering correction territory after a 10% drop from recent highs. The slide reveals bigger headwinds in the broader market, stemming from rising Treasury yields and innovative U.S. export restrictions on AI technologies.
The Biden administration’s new rules ban the export of AI tech to countries like Israel, Singapore, Saudi Arabia, and the UAEwith China, Russia, and others still barred. Commerce Secretary Gina Raimondo said preserving U.S. dominance in AI development and chip design was a key reason.
Nvidia strongly criticized the restrictions, describing them as a ‘regulatory morass’ preventing American innovation. In a blog post, the vice president of the company’s government affairs, Ned Finkle, accused the administration of stifling competition and risking losing the Edge on the nation’s technology. Nvidia gets 40% of its revenue in the U.S. and 15% each from Taiwan and China.
HSBC analyst Frank Lee also cut his price target to $185 a share but maintained a ‘buy.’ Lee said Nvidia’s potential headwinds in the first half of its fiscal year, beginning February, may necessitate a stronger second half performance to meet expectations.
Lee also lowered Nvidia’s expected data centre revenue for the fiscal year to $236 billion from $253 billion and cut the company’s sales estimates on the NVL 72 AI server racks to 220k. However, Lee said Nvidia still beats Wall Street consensus to beat earnings per share in the most likely bear case scenario.
All those regulatory shifts and blunted analyst tips have made Nvidia generally caution about this near-term growth.
This article first appeared on GuruFocus.
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