Nvidia shares extended their recent run of declines Tuesday as investors focused on the group’s fiscal-fourth-quarter earnings report, due later in the week, and on how new and potentially tougher U.S. export restrictions might affect its near-term sales outlook.
The Santa Clara, Calif., group’s (NVDA) shares, the market’s star performer in 2024, have stalled this year, falling around 6% amid a broader pullback in megacap tech stocks and concern tied to the emergence of China-based DeepSeek on global AI chip demand.
DeepSeek, a startup developed by a former hedge fund manager in 2023, claims to have built, trained and launched an AI-powered Chatbot, called the R1, at a fraction of the price of the systems produced by its U.S.-based rivals.
News of the launch in late January, and the implications it has for AI-investment spending over the coming years, triggered a $593 billion slump in Nvidia shares, marking the largest single-day decline on record.
It may also have sparked a potential overhaul of U.S. export rules as the Commerce Department investigates whether DeepSeek used chips that are banned from sale to China to train its large-language models. (LLMs are systems, trained on enormous amounts of data, that can understand human language and perform related tasks without human intervention.)
DeepSeek, the China-based AI startup, has rattled global tech stocks since the launch of its R1 chatbot in late January.
Nvidia has designed specific, but less powerful, chips for the China market under rules put in place by former President Joe Biden, including the H800 version DeepSeek reportedly used.
Tougher export rules on tap?
Bloomberg News is reporting, however, that President Donald Trump’s administration wants a stricter set of export rules, including but not limited to China, in order to keep U.S. companies at the forefront of AI development.
Morgan Stanley analyst Joseph Moore, in a note published Tuesday, says those restrictions could hurt Nvidia sales over the second half of the year.
“In the wake of DeepSeek’s success with the RI model, the government is likely to be more restrictive, but we don’t know what that looks like,” Moore said.
“Most in the industry expect there to be incremental controls, which several U.S. software developers have asked for, but nobody knows what that may look like (and) unlike last year, it could be a meaningful headwind to second half results.”
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Moore, who held his overweight rating and $152 price target in place heading into Wednesday’s earnings report, also said DeepSeek’s success will lower-end chips, as well as the looming export restrictions, could stoke demand for Nvidia’s legacy Hopper line instead.
Demand for Nvidia Hopper chips in focus
“Since DeepSeek R1 negatively impacted the stock, our checks would say that demand has strengthened. … H20 has been notably strong, but H100 and H200 are strong as well,” Moore said.
“Pull-forwards aren’t the best source of demand, but given that Hopper builds are coming to a natural end, it is a nice bridge to a strong potential for Blackwell in the second half of the year,” he added.
That could also mean, however, that Nvidia’s near-term revenue guidance could be more conservative than expected, given that Hopper chips command a lower price than their Blackwell successors.
Related: Analyst reworks Nvidia stock price target with Q4 earnings on deck
Analysts expect Nvidia to forecast April-quarter revenue in the region of $41.75 billion, which suggests a 60% growth rate from the year-earlier period. Data-center sales are expected to rise 65% to $37.21 billion.
Markets brace for Nvidia stock-price swings
For the three months ended in January, Nvidia’s fiscal Q4, Wall Street is looking for overall revenue of $38.05 billion, a 72% increase from a year earlier, with data center sales rising 82% to $33.6 billion.
At the bottom line, analysts expect profit of around $25.3 billion, or 84 cents a share, with gross margin in the region of 73.5%.
“We aren’t seeing the quarter as a major positive catalyst, but we remain convinced that once we get past export controls, there will be positive momentum” into the second half, Moore said.
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“We view this as something of a transitional quarter and thus not a major catalyst for the stock, but we remain overweight given expectations that the Blackwell cycle will continue to drive meaningful upside through (the second half of the year,” he added.
Nvidia shares were marked 0.7% lower in premarket trading to indicate an opening bell price of $129.35.
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