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Nvidia Stock Faces Setback Amid China Restriction Announcement – Is it a Smart Move to Buy?

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Nvidia, the top-performing stock in the S&P 500 this year, experienced a drop in trading on Tuesday after the Biden administration revealed plans to stop semiconductor shipments to China. But could this sell-off be an opportunity for investors to acquire shares at a discounted price?

Despite a consolidation period of nearly four months, Nvidia remains a strong performer, even after breaking out from a descending wedge two weeks ago. Additionally, the company holds a Zacks Rank #1 (Strong Buy), which signifies positive earnings revisions and a positive outlook for stock performance.

With a critical support level at $400, this could be a favorable time to consider buying shares, given the potential risk-reward ratio.

Image Source: TradingView

US Restricts Semiconductor Shipments to China

The Biden administration recently announced a halt in shipments of advanced artificial intelligence chips, including those designed by Nvidia, to China. This decision is part of a larger effort to prevent China from accessing cutting-edge US technology that could enhance its military capabilities. These regulations also restrict the export of advanced chips and chipmaking tools to other countries like Iran and Russia.

While Nvidia has confirmed compliance with the new regulations and does not anticipate a significant immediate financial impact, the company’s shares dropped by 5%. Similarly, chipmakers Advanced Micro Devices (AMD) and Intel (INTC) also experienced declines in their stock prices.

Nvidia Leads the AI Chip Market

Nvidia has positioned itself as the industry leader in AI hardware and software with the release of its Artificial Intelligence infrastructure products earlier this year. The company has outperformed competitors such as Intel and Advanced Micro Devices, establishing a significant lead in the AI chip market.

While Intel has seen some earnings estimate upgrades with a Zacks Rank #2 (Buy) rating, AMD has not convinced analysts to revise its earnings higher, currently holding a Zacks Rank #3 (Hold) rating.

Zacks Investment Research
Image Source: Zacks Investment Research

In Summary

Although the recent news has caused some uncertainty among traders, Nvidia still appears attractive at its current levels. Additionally, the final quarter of the year tends to show a strong bullish trend, making it likely that the market leader will finish the year on a high note.

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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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