Markets stabilized on Tuesday following Monday’s $6.4 trillion global equity crash. NVIDIA (NASDAQ:NVDA) shares rose over 2% in premarket trading, and other megacap stocks in the “Magnificent 7” also experienced a strong upswing.
Year to date, NVDA stock is still up more than 100%, even though it has fallen significantly since its recent peak. At the time of writing, it has lost more than $650 billion since its peak market cap.
There are several reasons for Nvidia’s recent decline that are worth discussing. The company announced a three-month delay in the release of its next-generation chips. This could prompt other megacap technology stocks to develop their own chips in-house at a faster pace.
Some analysts have warned that a lack of sales at this crucial time could hurt Nvidia’s valuation. It appears that this has already happened, and the question now is whether these headwinds are already fully priced into the semiconductor stock.
Let’s get to the bottom of this question and see if we can form an opinion one way or the other.
Chip production and delay problems
One GPU that is extremely popular among gamers is Nvidia’s GeForce RTX 3060, which was recently named the best GPU under $300. Unfortunately, reports suggest that the model could soon be discontinued.
An insider from the Bobatang forums has revealed that Nvidia is halting production and informing manufacturers about the last opportunity to order the RTX 3060.
Even if the RTX 3060 is indeed discontinued, it won’t disappear from stores immediately. Nvidia usually continues selling it for a few months after the announcement.
The end of production is significant as the graphics card holds a market share of 5.88%, easily overtaking the GTX 1650, which holds 4%.
In other news, sources said the release of Nvidia’s Blackwell B200 AI chips will be delayed by at least three months due to a design flaw at an advanced stage.
The B200 chips, successors to the highly sought-after H100 chips, will now ramp up production in the second half of the year.
Nvidia is delaying shipments of the Blackwell chips until the first quarter and is conducting tests with TSMC. Microsoft, Google and Meta have placed large orders. The chips should hit the market in 2024, marking the start of Nvidia’s annual AI chip releases.
AI spending
NVDA stock has been volatile and fluctuated with market movements. On August 2, it rose following the FOMC meeting that hinted at a possible rate cut and positive news from Microsoft about increasing investments in AI infrastructure. Nvidia benefited from this news.
Additionally, Meta-platforms (NASDAQ:META) announced plans to increase spending on AI through 2025, further fueling Nvidia’s recovery that we’ve seen between various slumps.
Despite Meta’s positive AI news, disappointing economic data overshadowed this tailwind. Unemployment rates in the US are currently higher (though recent jobless claims data complicates the picture), leading to a market decline in recent weeks.
NVDA could also see a decline after the earnings release if guidance disappoints, even if it beats estimates. Concerns about ROI on AI spending remain, but Nvidia’s CFO plans to address these with positive metrics.
Goldman Sachs continues to have confidence in Nvidia’s leadership and expects second-quarter results to beat estimates.
Nvidia’s revenue rose 262% to $26 billion in the first quarter, and earnings per share rose 629% to $5.98. Revenue in the second quarter is estimated at $28 billion, which could set a new record. Analysts expect $28.4 billion.
With AMD’s strong second quarter and increased AI spending from Microsoft and Meta, NVIDIA is headed for another significant quarter.
Analysts remain optimistic
Nvidia gained 3.8% to $104.25 on Tuesday, recovering with the market after Monday’s sell-off and easing fears about chip delays. Oppenheimer’s Rick Schafer emphasized Nvidia’s solid positioning in the AI space despite minor delays.
Analysts expect the company’s Hopper chips to mitigate the problems, so the price target for the stock remains at $150.
On Tuesday, NewStreet’s Pierre Ferragu upgraded NVDA stock to “buy” with a $120 target, citing delays in Blackwell chips as a reason for easing supply problems.
He noted that higher spending on current Hopper chips would benefit Nvidia. Susquehanna’s Mehdi Hosseini downplayed major delays and said Blackwell chip earnings and forecasts remained stable.
Many analysts and experts still believe AI is a lucrative business and believe the current decline is a buying opportunity. I believe Nvidia’s leadership in high-performance chips will provide the company with long-term growth.
Of course, there can be short-term pullbacks, and they’re likely to happen in the coming months, but there’s a reason Nvidia has proven to be a long-term gem for patient investors.
At the time of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s disclosure policies.
At the time of publication, the editor in charge did not hold any positions (either directly or indirectly) in the securities mentioned in this article.
