Nvidia's fall, due to BABA & MSFT ? Read & decide.

A few days ago, I have posted on Nvidia’s Q3 2024 earnings and its falling stock price.

• Nvidia is falling, time to Buy? - click to read, give a like. Thanks.

Main drivers of Nvidia's stellar performance were strong demand for its (a) data center and (b) gaming products, that enable artificial intelligence (AI) and high-performance computing (HPC) capabilities.

On Black Fri, 24 Nov 2023 when trading resumed for half a day, Nvidia continued to trend downwards. (see above)

Based on its peak price of $505.48 as of 21 Nov 2023, Nvidia has fallen by -5.5% by the time trading ended on Black Friday.

In contrast, the 3 US composite indexes, have been rising during the same period. (see above)

• DJIA has gain +1.22% to 35,390.15 for the past 5 trading days.

• $S&P 500(.SPX)$ has +1.10% to 4,559.34.

• Nasdaq has gained +1.06% to 14,250.85.

Nvidia’s fall from grace - 2 reasons:

(1) One reason for Nvidia's underperformance is the market's high expectations for the company, which may have already been priced in before earnings release.

As we know, US stocks are always “priced / valued” based on its forward earnings potentials.

(2) The other reason is the news that Nvidia has delayed the release of a new AI chip for China to early 2024 due to supply chain issues and regulatory hurdles. (see below)

I really see this as the more “plausible” cause for $NVIDIA Corp(NVDA)$ tumbling prices after its quarterly earnings call on Tue, 21 Nov 2023, US time 5pm.

What do I think?

• The new restrictions by the Biden administration kicked in earlier in mid October 2023, instead of original November 2023, caught Nvidia and its contract manufacturer by surprised.

• Based on Nvidia’s past quarterly reports, sales to China and the other affected regions made up 20%-25% of Nvidia's data-center revenue over the past few quarters.

• The restrictions will impact Nvidia's sales & growth prospects in the Chinese market, that is one of the largest and fastest-growing markets for AI and HPC applications.

• Obviously, the delay of a new AI chip will affect Nvidia's next quarterly earnings, that is expected on 28 Feb 2024 (tentative).

• Currently, analysts are projecting (a) revenue of $19.32 Billion and (b) earnings-per-share of $4.35 for Nvidia’s 4th quarter.

• However, these estimates could go “south” if Nvidia faces more challenges in delivering its products to China or other regions amidst ongoing global chip shortage & geopolitical tensions.

I am quite certain (just my view and mine only) that Nvidia has already lost one of its major Chinese customers - $Alibaba(BABA)$ . How could I be so certain ? (see below)

Although above news-article centred around:

(1) Alibaba’s overhaul of its cloud computing unit by bringing in veterans to new leadership positions, as it looks to revive the division after cancelling its public listing.

(2) Alibaba’s bigger emphasis on 3 business units (BUs) within the cloud space:

• Public cloud.

• Hybrid cloud.

• Cloud infrastructure.

(3) Alibaba will focus on AI in the cloud, as AI applications require vast amounts of computing power that cloud computing firms can offer.

Does it appear to you that Alibaba is dragging its feet, while attempting to reorganize and restructure and perhaps {at the same time} source for alternative chips that may help them achieve their above multiple objectives?

On Wed, 15 Nov 2023, Microsoft has unveiled two chips at its Ignite conference in Seattle.

• The first chip is Maia 100, an artificial intelligence chip.

• Potentially, it could compete with Nvidia’s highly sought-after AI graphics processing units (GPUs).

• The second chip, a Cobalt 100 ARM chip, is aimed at general computing tasks and could compete with Intel processors.

• Microsoft built its chip for AI computing based on customer feedback.

• Both chips will be deployed on Microsoft Azure’s cloud services, for customers in 2024.

• Microsoft is already subjecting Maia 100 to rigorous testing to ensure its efficiency and quality.

These two Microsoft’s “boons” could become Nvidia’s growing bane as Microsoft takes the “self sufficiency” route.

For sure, it translates to less revenue from Microsoft.

• Do you think Nvidia will continue to fall this week?

• Do you think Nvidia will report weaker earnings (Q4 2024, Q1 2025) in 2024?

• Do you think there will be other Chinese IT companies that would be affected by the advanced-AI chip export ban? Eg. $Baidu(BIDU)$ , $Tencent Holding Ltd.(TCEHY)$ etc…

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