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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

Nvidia outlook: the US bans AI chips to China and Russia

Apart from Nvidia's share price falling 16% last week and experiencing worse-than-expected quarterly results, the US government has stepped in to restrict AI chip sales to China and Russia.

Source: Bloomberg

What happened to Nvidia?

The end of August saw Nvidia state in an SEC filing that the US government is restricting the sale of its high-performance AI chips to China and Russia.

The chips, created for the A100 and H100 servers, come from the company's fastest-growing sector, heralding $3.8 billion in sales last quarter, a 61% yearly growth. According to the recent preliminary financial results for the second quarter Fiscal 2023, Nvidia's total revenue of $6.7 billion was down 19% and only up 3% year-on-year.

Based on the new export ban, Nvidia will lose $400 million in potential sales in China for the current quarter and more than one billion for the whole year. This loss further deteriorates the revenue outlook for the company.

Source: Nvidia

The main reason behind the US's sudden move is to prevent the world-leading graphics processors made by Nvidia and AMD to be used for China’s weapon development, facial recognition and other advanced military capabilities. The steps taken by the US are seen as an expected response to the recent rising tension between China and Taiwan.

What to expect next?

While it is not clear what actions the US government will take to restrict American businesses from exporting chips and other high-tech products, the message for Nvidia is clear: the company is caught in the cross-hairs between two global superpowers. The tricky political game will likely further complicate Nvidia's situation, leaving the company in uncertain territory.

That said, even if the US government allows Nvidia to continue developing its H100 artificial intelligence chip in China, the damage has already been done. China will undoubtedly take this as a pre-warning sign of payback, meaning shareholders shouldn't expect the “tit-for-tat” to end anytime soon.

Nvidia's technical analysis

After last week’s nosedive, the stock price for Nvidia has fallen by over 50% this year and is 60% lower than its November peak. Given all the headwinds ahead including the slowdown in PC and gaming sales, inflation pressure, and the US restricting AI chip sales, it’s unlikely to expect a quick turnaround any time soon.

However, for the long-term believer, Nvidia still enjoys market leadership in areas like the cloud gaming market, with the outlook to be worth $22 billion by 2030 to bolster the business’s sustainable growth in the long run.

From a technical point of view, the stock price followed a steep descending track last week. The breach to the $144 level opened the floor from the yearly low and the current support sits around $135. If the price keeps moving below this level, the next support can be found at $125, not seen since March 2021.

Meanwhile, a near-term breather might be at play if buyers take hints from the RSI indicator. Even so, traders must be aware that with the bears currently in control, any rebound from this level could leave the formation of a lower high on watch.

Nvidia Corp daily chart

Source: IG

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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