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Nvidia stock exposed as $5 billion in orders face cancellation risk

Nvidia stock exposed as $5 billion in orders face cancellation risk

So far in 2023, Nvidia (NASDAQ: NVDA) experienced a phenomenal surge in both sales and stock market performance, attributing its success to its pivotal role in the ever-expanding artificial intelligence (AI) sector. 

However, recent weeks have seen the company’s stock relinquish some of its remarkable gains, as broader tech stock sell-offs have been triggered by challenging market conditions. Factors such as increasing Treasury yields, soaring interest rates, European recession concerns, and escalating tensions in the Middle East have all contributed to this setback. 

Furthermore, October 31 reports revealed that NVDA faces yet another threat, with $5 billion in company orders being at risk of cancellation due to newly implemented US regulations.

What happened?

New export controls implemented by US authorities may force Nvidia to cancel billions of dollars in 2024 orders for its advanced chips to the Chinese market, according to a report by the Wall Street Journal (WSJ).

While the move would mark a significant blow to Nvidia’s sales, it would simultaneously strip Chinese tech companies of key AI resources.

Nvidia had already finished delivering orders of its sophisticated AI chips to China for 2023 and was attempting to make advance deliveries for some of its 2024 orders before the new export controls came into force in mid-November, per WSJ.  

However, Nvidia was informed by the US government last week that the new export restrictions targeting the sale of high-end chips to other countries, including China, were effective immediately. 

Some of the Chinese companies that made large-scale orders for advanced AI chips include Alibaba Group (NYSE: BABA), TikTok owner ByteDance, and tech giant Baidu, among others. In total, orders for the next year exceeded $5 billion, the report said.

Nvidia stock price analysis

Shares of Nvidia were sitting at $411.61 at press time, up 1.6% in the past 24 hours.

The stock fell more than 4.4% on the week and around 6% across the month amid the broader market sell-off.

NVDA 1-month price chart. Source: Finbold

Year-to-date, Nvidia’s shares are still up more than 187%, making it the best-performing stock tracked by the S&P 500 index.

Regarding the impact of the new export controls, Nvidia’s spokesman said that the company has been actively engaged in efforts to distribute its advanced AI computing systems, which utilize graphics chips impacted by the regulations, to customers within the United States and other regions. 

Additionally, they are exploring options to secure supplementary supply.

“These new export controls will not have a meaningful impact in the near term.”

– the spokesman said.

The restrictions are part of the broader Biden administration’s strategy to limit China’s access to advanced technology, which it believes could enhance China’s military and cyberwarfare capabilities.

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