Nvidia’s stock is hurt by global security concerns

Nvidia stock surprised investors by opening Monday in a surprising decline.

Shares fell 2.6 percent to $118.29 after a report that China told local developers of artificial intelligence applications to use only Chinese-made chips in their products.

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China is an important market for Nvidia (NVDA) products. Sales to China totaled $6.1 billion, or about 11 percent of its first-half revenue.

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But as the day wore on, the intensity of the story seemed to wane. As a result, Nvidia clawed back all early losses and ended the day down 4 cents to $121.44.

At last premarket check, shares were up 0.2 percent at $121.73.

For September, the stock rose 1.7% and ended the third quarter down 1.7%. They are down 13.7% from their 52-week high of $140.76 hit on June 20.

BUT Nvidia shares are up 145.2% year-to-date, the second-best S&P 500 gainer in 2024 behind energy company Vistra. (VST) 207.7% gain.

That’s a strong return, but Nvidia is up as much as 184% by early 2024. Shares have fallen again as the bubble in many tech and chip stocks has dissipated.

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Nvidia’s relationship with the People’s Republic of China is actually complicated. Both are economic giants that have embarked on new rounds of stimulus.

The company is barred from selling its most powerful products, including H100 graphics processing units, to China under an order from the Biden administration in 2022. The administration, like the Trump administration, has been suspicious of China’s interest in American technology.

The Chinese government wants to support its fast-growing and sophisticated technology sector and has very visible interests in taking control of everything in the South China Sea, with Taiwan being a major focal point.

Nvidia is still allowed to sell its less powerful products.

Nvidia products easily find their way to China

And despite the export bans, Nvidia’s chips and its powerful GPUs, especially the H100 GPUs, are making their way to mainland China. And demand for Nvidia’s yet-to-be-released next-generation Blackwell chips is huge.

The Wall Street Journal and The New York Times have documented how active networks of gamers are involved in obtaining Nvidia’s most powerful GPUs and shipping them to China.

The means can be as easy as forming companies outside of China to buy GPUs and ship them to the mainland. Or maybe a Chinese student from Singapore going home on vacation puts some of the units in a suitcase that isn’t closely examined.

The Nvidia logo is displayed on a smartphone screen on a computer screen that displays stock graphics movements.

NurPhoto/Getty Images

Or a company will be organized to build data centers outside China that use Nvidia chips and products and make their computing power available to customers on the mainland.

There are distributors who advertise their ability to obtain the tokens online and it is not clear how they get their supplies. Nvidia typically sells its GPUs and related products to other companies such as Dell Technologies (della) which installs them in server computers and related products.

The traffic flow of products and services can only be an intermediate measure. China supports domestic companies that can produce chips that do what Nvidia’s products can do.

Bytedance, the parent of TikTok, plans to develop an AI capability with chips from Huawei Technologies, the Chinese tech giant that is now the world’s largest smartphone maker, Reuters reported.

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