Why Nvidia Stock Declined Despite Strong Earnings: Analyst Insights

Nvidia (NASDAQ: NVDA) shares faced a sell-off last week despite reporting robust earnings, with tech analyst Jordan Klein from Mizuho TMT highlighting concerns over potential U.S. government restrictions on chip exports to China as a major factor behind the decline.

Key Concerns Driving the Nvidia Stock Drop

Klein pointed out that reports suggest Singapore is investigating whether Nvidia’s GPUs were illegally exported to Malaysia and subsequently into China. However, he dismissed this as a “red herring”, stating that industry insiders already acknowledge that Nvidia chips are making their way into China through various Asian entry points.

The more significant risk, according to Klein, isn’t the scrutiny over Singapore and Malaysia but rather the possibility of a comprehensive U.S. government ban on all Nvidia chip sales to China. This potential policy shift has raised investor caution, leading to reduced confidence in the stock.

Impact of Trade Restrictions on Nvidia’s Revenue

The looming uncertainty around trade regulations has deterred buyers, with concerns that a total ban could cut $4-5 billion in revenue and reduce FY26 earnings per share by up to $0.18. Some estimates predict an even larger financial impact, but the actual outcome will depend on broader U.S.-China trade relations, including the possibility of a 25% tariff on Chinese goods and potential retaliatory measures from China.

Analyst Outlook: Long-Term Upside for Nvidia

Despite these near-term risks, Klein remains bullish on Nvidia’s long-term growth potential, particularly at its current valuation. He noted that at $125 per share, the 22x FY27 price-to-earnings ratio already factors in future revenue losses from China.

Looking ahead, he expects stronger upside potential in the second half of the year, with Nvidia’s GTC conference in two weeks serving as a potential catalyst for renewed investor interest. Additionally, he anticipates another rally later in the year, particularly from the July quarter onward, as Nvidia’s new BW Ultra chip production scales up, leading to an improvement in gross margins.

Conclusion

While geopolitical risks and trade restrictions have contributed to Nvidia’s recent stock decline, long-term growth drivers remain intact. Investors should keep an eye on regulatory developments, upcoming product launches, and broader market trends to assess Nvidia’s future trajectory.

(Sources: investing.com, reuters.com)