:max_bytes(150000):strip_icc()/GettyImages-957037018-6c580dff89fd4ef4a918a06e18170ca6.jpg "Nvidia Falls Amid China Sales Worries, But Analysts Say Investors Underestimate AI Gains")
Key Takeaways
- Nvidia shares fell in intraday trading Wednesday after the chipmaker reported better-than-expected earnings amid concerns about the impact of restrictions on chip exports to China.
- However, analysts suggest investors may be underestimating Nvidia’s position in the artificial intelligence boom.
- Analysts indicated a decline in Nvidia’s China sales could be offset by gains in other areas.
Nvidia (NVDA) shares dropped over 3% in intraday trading Wednesday amid concerns about the impact of restrictions on chip exports to China, despite the chipmaker’s third-quarter earnings and revenue beat, with revenue more than tripling compared to the same period last year. However, analysts suggest investors may be underestimating Nvidia’s strength, and that Nvidia could well-positioned to reap the benefits of the artificial intelligence (AI) boom.
Prior to reporting quarterly results after the bell Tuesday, Nvidia shares reached record highs, setting new intraday and closing highs on Monday.
Analysts Say Investors Could Be Underestimating Nvidia’s AI Strength
As investors pull back on Nvidia, industry analysts are bullish, anticipating Nvidia to be a key beneficiary of a surge in demand for AI.
Wedbush analysts said Nvidia’s earnings beat could serve as a “key data point for the rest of the tech sector as the first derivative and best proxy for overall AI spending,” and indicated they see it as “confirmation that AI use cases are exploding across the enterprise and consumer landscape.”
The firm also said that it views AI as “the most transformative technology trend since the start of the Internet in 1995,” and that they “believe many on the Street are underestimating the $1 trillion of AI spend set to happen over the next decade in a bonanza for the chip and software sectors looking forward into 2024 with Nvidia and Redmond leading the way.”
Impact to China Sales Could be Offset by Gains From Other Regions and AI
While analysts did indicate they expect U.S. restrictions on chip exports to China to negatively affect Nvidia, they suggested the impact could be less significant than the gains the chipmaker stands to make in other areas.
Wedbush analyst Matt Bryson said that while “revenues related to China are expected to decline significantly,” these losses are expected to be “offset by growth in other regions.”
Angelo Zino, senior equity analyst at CFRA Research, echoed a similar sentiment, saying that “while investors are likely getting skittish about the sustainability of data center trends,” the firm anticipates that Nvidia’s margin profile and scalable business model will “drive significant free cash flow (FCF) potential.”
Jefferies analysts said that Nvidia could be “best positioned” compared to competitors such as Intel (INTC) and Advanced Micro Devices Inc. (AMD), and designated Nvidia as its “franchise pick.”
