Nvidia (NASDAQ:NVDA) continues to lead the AI chip market, holding a rather impressive and lucrative first-mover advantage in many high-performance chips. With an incredible surge in interest around artificial intelligence technology, NVDA stock has skyrocketed year-to-date. However, since peaking at just over $500 per share, Nvidia has seen its stock price dwindle to around $415 per share at the time of writing.
Many investors question which direction the next 10% move in NVDA stock will be. While no one truly knows, there are plenty of geopolitical, macro, and company-specific factors to consider.
Let’s dive into what investors may want to keep their eye on when it comes to Nvidia.
Chip Restrictions Changing the Game
New US regulations restricting AI chip exports to China are the latest headwind to impact Nvidia negatively. The export of the company’s sought-after AI chips will be limited, leading to questions about whether Nvidia can hit its aggressive sales targets, and continue to hold a valuation above $1 trillion. Recent restrictions further tightened controls, closing loopholes and enhancing their durability, according to the Department of Commerce.
The objective of this crackdown appears to be limiting China’s access to advanced semiconductors critical for military applications, without seeking to harm China’s economy. China firmly opposed these restrictions, calling them arbitrary and against market economy principles and international trade.
AI-focused chips are in strong demand, and Nvidia is confident that recent export restrictions won’t significantly impact its business due to global product demand and compliance with regulations. The company published an 8-K outlining the expected effects of the rules.
The new rules expanded licensing requirements for chip exports to over 40 additional countries, which included restrictions on chip shipments beyond China, even to regions like the Middle East. These measures affected chip supplies to units of companies headquartered in China, Macau, and other arms-embargoed countries.
The Biden administration also imposed licensing requirements for chipmaking tools in 21 countries due to concerns about equipment diversion to China and other national security issues.
Analysts Remain Bullish on NVDA Stock
Despite what appears to be a deteriorating geopolitical environment, analysts seem to remain broadly bullish on NVDA stock. That’s mainly because Nvidia remains the primary beneficiary of AI’s rapid expansion. In July, Mizuho Securities analyst Vijay Rakesh predicted Nvidia’s AI revenue will reach $300 billion by 2027. This projection relies on maintaining a 75% market share in AI server chips.
He maintains that AI demand remains robust, counterbalancing the restrictions’ short-term effects. Anticipating NVDA to recover from product sales losses with global solid market for A100/H100 and a substantial AI backlog in the next year. Nevertheless, based on his calculations, he envisions more significant challenges in the long run, considering that China makes up around 20% of AI market demand.
Additionally, KeyBanc analyst John Vinh, maintaining a Buy rating on Nvidia with a $750 price target (about 71% upside), views the new restrictions unfavorably. He foresees minimal short-term impact as Nvidia can shift demand globally but acknowledges the challenge of replacing China’s 20-25% data center revenue. A 20% impact on his $101 billion revenue estimate for Fiscal 2025 implies a potential $20 billion revenue loss and a $5 earnings per share decrease. However, over the long term, the growth story remains intact, and analysts continue to push out higher and higher price targets.
Nvidia Still Looks Very Strong
Sure, macro conditions are weakening, and the geopolitical backdrop we’re seeing is the most volatile it’s been in some time. However, Nvidia remains the cleanest shirt in an otherwise dirty laundry pile. At least, that’s how many analysts and market participants seem to view the company.
Analysts have shown confidence in NVDA stock, with a consensus strong buy rating. This includes 37 buy ratings and one hold rating, and the average price target sits at $650.53 per share, suggesting around 41% potential upside.
I think long-term investors can hold NVDA stock here, but I’d be cautious about putting fresh capital to work in this name. I believe valuations across the board are becoming stretched, and Nvidia shouldn’t be excluded from that narrative. That said, this company has continued to prove its high multiple is warranted, and there’s no reason to believe anything has fundamentally changed in this regard.
On the date of publication, Chris MacDonald did not have (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.