On Tuesday, markets stabilized after Monday’s $6.4 trillion global equity drop. Nvidia (NASDAQ:NVDA) stock rose over 2% in premarket trading, with other megacap ‘Magnificent 7’ stocks also seeing sharp rebounds.
On a year-to-date basis, NVDA stock is still up more than 100%, though it’s down considerably from its recent peak, shedding more than $650 billion from its peak market capitalization at the time of writing.
There are several reasons for Nvidia’s recent drop that are wroth discussing. The company announced a three-month delay on its next generation chips. This might push other megacap tech stocks to develop their own chips internally at a faster rate.
Some analysts have warned that missing sales during this crucial period could hurt Nvidia’s valuation. It appears that’s already happened, and now the question is whether these headwinds are fully priced into this semiconductor stock right now.
Let’s dive into this question and see whether we can form an opinion one way or another.
Chip Production and Delay Problems
A highly popular GPU among gamers is Nvidia’s GeForce RTX 3060, recently named the best GPU under $300. Sadly, reports say the model might be discontinued soon.
An insider from Bobatang forums revealed Nvidia is ending production and notifying manufacturers about the last opportunity to order the RTX 3060.
Even if the RTX 3060 is indeed being discontinued, it won’t vanish from stores immediately. Nvidia typically continues sales for a few months post-announcement.
The end of production is significant, as it holds 5.88% market share, skyrocketing pass the GTX 1650, which holds 4%.
In other news, Nvidia’s “Blackwell” B200 AI chips will be delayed by at least three months due to a late-stage design flaw, sources reported.
The B200 chips, successors to the highly sought-after H100, will now ramp up production in the second half the year.
Nvidia is delaying Blackwell chip shipments until Q1, working through tests with TSMC. Microsoft, Google, and Meta have placed huge orders. The chips were expected to launch in 2024, starting Nvidia’s annual AI chip releases.
AI Spending
NVDA stock has been volatile, fluctuating with market movements. On Aug. 2, it rose following the FOMC meeting hinting at a potential rate cut and positive news from Microsoft increasing AI infrastructure investments. Nvidia benefited from this news.
Additionally, Meta Platforms (NASDAQ:META) announced plans to boost AI spending through 2025, further aiding fuel to the Nvidia momentum rally we saw form in between various dips.
Despite Meta’s positive AI news, disappointing economic data overshadowed these tailwinds. Jobless rates are higher in the U.S. now (though recent jobless claims data complicates the trajectory), leading to a market downturn in recent weeks.
NVDA might also see a drop post-earnings if guidance will disappoint, even if it beats estimates. ROI concerns on AI spending loom, but Nvidia’s CFO plans to address these with positive metrics.
Goldman Sachs remains confident in Nvidia’s leadership and expects Q2 results to surpass estimates.
Nvidia’s Q1 revenue soared 262% to $26 billion, with earnings per share up 629% to $5.98. Q2 revenue is estimated at $28 billion, potentially setting another record. Analysts expect $28.4 billion.
With AMD’s strong Q2 and increased AI spending from Microsoft and Meta, NVIDIA is poised for another significant quarter.
Analysts Remain Bullish
Nvidia gained 3.8% to $104.25 Tuesday, rebounding with the market after Monday’s sell-off and easing fears about chip delays. Oppenheimer’s Rick Schafer highlighted Nvidia’s solid AI positioning despite minor delays.
Analysts believe the company’s Hopper chips will mitigate issues, maintaining a $150 target price for the stock.
On Tuesday, NewStreet’s Pierre Ferragu upgraded NVDA stock to Buy with a $120 target, citing delays in Blackwell chips as easing supply issues.
He noted that higher spending on current Hopper chips would benefit Nvidia. Susquehanna’s Mehdi Hosseini downplayed major delays, stating that yields and forecasts for Blackwell chips remained stable.
Many analysts and experts still view AI as a strong trade, suggesting the current dip is a buying opportunity. I believe Nvidia’s leadership in high-performance chips positions it for long-term growth.
Of course, near-term dips can materialize and likely will over the coming months. But there’s a reason Nvidia has turned out to be a long-term gem for investors who have been patient.
On the date of publication, Chris MacDonald did not hold (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
