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Nvidia Faces Setbacks Amid Export Controls and Revenue Drop

Nvidia's stock fell 8.5% last week as it faces major export controls affecting its H20 chip sales. Despite expected revenue growth, the export restrictions could impact net income for upcoming quarters. Analyzing this reveals both short-term challenges and long-term potential.

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AI Rating:   5

Stock Performance and Context
Nvidia's shares experienced a sharp decline of 8.5% last week, reflecting broader market trends, notably a 1.5% dip in the S&P 500 and a 2.6% fall in the Nasdaq Composite. Competitor Advanced Micro Devices also saw a decline of 6.3%, signaling sector-wide pressure.

Impact of Export Controls
The major catalyst for Nvidia's stock performance was the U.S. government's new export controls affecting sales of the H20 chip to China, resulting in charges approximating $5.5 billion. This represents a significant risk to Nvidia's revenue trajectory, particularly since data center revenue constitutes approximately 90.6% of their total revenue. Ordinarily, Nvidia is known for consistently beating guidance, but the charges will likely suppress net income significantly.

Financial Metric Outlook
The projections for fiscal first-quarter 2026 show anticipated revenue of $43 billion, representing a growth of 65% year-over-year. However, accounting for H20-related charges suggests a possible revenue realization of around $38.5 billion, marking a decline compared to the previous quarter's $39.33 billion. Such a decrease would also likely dampen net income substantially, due to the data center platform's lucrative nature.

Future Projections
Despite the immediate impact of export restrictions, Nvidia is positioning itself for long-term growth through domestic production initiatives for AI supercomputers and partnering with significant manufacturers such as Taiwan Semiconductor Manufacturing Company. This strategy could mitigate some risks by capitalizing on increased domestic demand amid international sales challenges.

Overall Outlook
While the short-term outlook for Nvidia is challenging due to export restrictions and upcoming financial results, the company retains strong market leadership in AI chip production and a massive total addressable market. Investors may find opportunities in this dynamic, but must remain vigilant about the near-term performance as the situation evolves.

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