Why Nvidia Attempted a Recovery Today

What happened

Shares of graphics chipmaker Nvidia (NASDAQ: NVDA) were up slightly on the day, rising 0.6% as of 2:09 p.m. ET after rallying as much as 2% in early trading, defying the broader technology sector that is down slightly on the day.

Nvidia bounced after a terrible month in which several new headwinds came to the fore. On its Augustearnings call the company gave weaker-than-expected guidance, as its graphics segment is in severe decline as cryptocurrency mining and PC demand has plummeted. Adding insult to injury, the Biden administration recently issued export restrictions on Nvidia's high-end data center chips to China.

Yet after a big price decline, Nvidia is attempting to bounce today, as rumors are circulating it may try to rush data center GPU chip orders to Chinese customers before the ban takes hold.

So what

According to Taiwanese business journal UDN, Nvidia has reportedly asked its foundry partner Taiwan Semiconductor Manufacturing (NYSE: TSM) to rush production of A100 and H100 chips so that it can sell these lucrative high-end chips to Chinese customers before restrictions take effect.

It's a bit unclear how much Nvidia could ship before the ban takes effect, and if Nvidia will sell directly to Chinese customers or other non-Chinese companies with operations in China. According to the report, the "buffer period" for the A100 could extend to March 2023 and the H100 could extend to September 2023 for some customers.

A one-year buffer could certainly help Nvidia, as it had previously forecast that the restrictions could potentially impact up to $400 million of revenue in the current quarter alone. The looming ban, which requires an export license to ship high-end GPUs to data center customers, could also be causing a near-term rush of orders from Chinese entities that may have otherwise held off in a soft economy. These orders, if they come to fruition, could help mitigate the otherwise soft demand Nvidia is experiencing right now.

Considering the buffer period as well as the rush of orders, Nvidia's data center revenue might not be affected as severely as the $400 million figure the company disclosed in its Aug. 31 press release.

Now what

Warren Buffett once said, "The best thing that happens to us is when a great company gets into temporary trouble. ... We want to buy them when they're on the operating table."

Nvidia may not exactly be "on the operating table," as it still trades at a generous 35 times earnings. Still, with the stock down 55% on the year, and with its technology lead in chips that enable artificial intelligence, it's certainly a great company that has been heavily discounted.

One can argue if its prior valuation was justified, but for longer-term investors, the recent troubles for Nvidia could be an attractive investment opportunity over the long-term. That's especially true if the current slowdown only lasts a couple of quarters, and if the export restrictions don't wind up being as much of a headwind as some fear.

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Billy Duberstein has positions in Taiwan Semiconductor Manufacturing. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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