NOT ALL BAD:
Nvidia is still Morgan Stanley’s top pick in the semiconductor sector, and 95 of analysts have a buy-equivalent rating on the company

Investors who snapped up shares of Nvidia Corp at the bottom of last month’s swoon were given a harsh reminder of the multiple forces pushing and pulling on the chipmaker’s business prospects.

What looked like a prescient bet last month — the stock surged 14 percent over 15 trading days — turned sour last week as shares tumbled on new US chip rules on China, a move that threatens a chunk of the one-fifth of Nvidia’s revenue that came from that country last quarter.

It was another harsh reminder for Nvidia fans that for all the hype around its position as a primary beneficiary of the artificial intelligence (AI) gold rush, the company’s more immediate prospects are at the mercy of the geopolitical struggle over the chips that power virtually every aspect of the modern world. It is also not immune to rising interest rates and the economic concerns weighing on markets.

Photo: Reuters courtesy of Nvidia

Nvidia vaulted to the top of performance charts in May after it gave a sales forecast that shattered analyst expectations and solidified the chipmaker as a main beneficiary of the AI trend. The stock’s record surge put Nvidia’s market capitalization in reach of US$1 trillion, a level it surpassed in June.

At its next earnings release in August, another blowout report catapulted shares to an all-time high.

Since reaching that peak, performance has been rockier. Shares fell 12 percent last month, Nvidia’s worst monthly performance this year, weighed down by concerns about demand sustainability.

The stock fell nearly 9 percent last week, but is still up 188 percent this year and remains the top performer on the S&P 500 and NASDAQ 100.

So far, Wall Street analysts have not changed their bullish tune on the stock.

While some have cut price targets, 95 percent of analysts have a buy-equivalent rating on Nvidia, data compiled by Bloomberg showed.

“This is a significant setback, but business is likely to continue to exceed expectations despite that,” Morgan Stanley analysts led by Joseph Moore — who recommended buying the stock in its September dip — wrote in a note on Wednesday last week, adding that Nvidia is still their top pick in the semiconductor sector.

Silvant Capital Management LLC chief investment officer Michael Sansoterra said the added export restrictions for China shipments hardly dent Nvidia’s long-term appeal.

“You’re going to see some volatility in the stock that’s not pleasant to go through, but it’s also not unexpected,” he said. “We like Nvidia in our portfolio, and we see value when it pulls back.”