Is Nvidia’s share price rally finally coming to an end?

Despite Nvidia's positive results, shares have not seen the same boost that they have in the past two quarters. Are they starting to wobble?

The computing giant posted strong third-quarter sales of $18.1bn (£14.5bn) last night, more than $2bn (£1.6bn) over analyst expectations. Net income soared $3.1bn (£2.5bn) from the second-quarter, up to $9.2bn (£ 7.3bn).

But, despite the positive results, shares have not seen the same boost that they have in the past two quarters.

The stock has dropped nearly two per cent in after hours trading, extending a near 1 per cent drop on Tuesday.

Is Nvidia’s share price, which has rocketed over 240 per cent this year and is the best performing stock on the S&P 500 index this year, comfortably surpassing other tech giants. , rally coming to an end?

Analysts say Nvidia’s share price is set to come under pressure as investors weigh up the impact of US trade sanctions on chip exports to China.

Russ Mould, AJ Bell’s investment director, said its shares “are not responding as strongly as they did after the bumper Q1 and Q2 results, as investors ponder the risks posed by American sanctions on Chinese buying.”

Sales in China represents roughly one fifth of the company’s sales. But a recent US trade intervention now requires American chip companies to seek government approval for the export of certain chips to countries such as China and Russia.  

Nvidia has forecast weaker sales to China and other markets hit by the regulations in the fourth quarter as a result. But the firm is confident it can shake off these concerns, saying other markets will pick up the slack.

“That reassurance seems to have pacified investors who initially panicked at the news,” said Mould.

That said, there are some concerns that more restrictions could soon come for Nvidia, as the US looks to curb China’s access to powerful semiconductors that could help them make breakthroughs in AI.

Investors are taking a minute to digest the impact of the export controls, according to Derren Nathan, head of equity research at Hargreaves Lansdown.

“For now, that’s being more than compensated for by booming demand elsewhere but there are concerns there will be more restrictions to follow, which could accelerate local efforts to close the technological gap. But given how high Nvidia’s set the bar, that won’t be easy,” Nathan said.

However, Victoria Scholar, head of investment at interactive investor, said yesterday and today’s downward trend of shares is “a mere drop in the ocean compared to this year’s triple digit surge of almost 250 per cent.”

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