Nvidia's Troubles! Has the Golden Goose Finally Laid a Rotten Egg?!

Of Dragons Geese and Semiconductor Fiascos

My dearest investors it appears even the most enchanting enterprises can stumble upon a thorny patch. UBS a financial institution of no small repute has adjusted its crystal ball regarding Nvidia. Alas their predictions have dimmed slightly suggesting a less glittering future than previously foreseen. This it seems stems from a rather… forceful directive concerning the export of certain graphics processing units – H20s to be precise – to the land of China and other destinations. As I always say 'It takes a great deal of bravery to stand up to our enemies but just as much to stand up to our friends.' Even when those friends are major economies and significant trading partners.

The Ministry of Trade's New Decree

The American authorities in their infinite wisdom (or perhaps bureaucratic zeal) have decided that Nvidia requires a special license to send these magical chips abroad. It appears the Ministry of Trade is feeling particularly…vigilant. This development has led UBS to lower its price target for Nvidia from a respectable $185 to a still not insignificant $180. Though fear not! Analyst Timothy Arcuri assures us that this new forecast still implies a rather cheerful 72% upside for the stock. As I often remind my students 'Happiness can be found even in the darkest of times if one only remembers to turn on the light.' Or in this case perhaps invest wisely.

Competition: A Fierce Game of Quidditch

But alas the plot thickens like a cauldron bubbling with Polyjuice Potion! Mr. Arcuri also highlights the rising competition from those scamps at Advanced Micro Devices (AMD) and Intel. The semiconductor sector it seems is a perilous Quidditch match with rivals vying for the Golden Snitch (market share) with alarming enthusiasm. As I once said to young Harry 'I'm not worried Harry,' said Dumbledore his voice a little stronger even though his hand was still cold 'I am with you.' Though in this case 'I' am not buying Nvidia just yet.

The Gloom of Economic Uncertainty

Furthermore Nvidia faces the ominous shadow of a sluggish economic recovery. It appears that corporate profitability which historically dances hand in hand with revenue trends may find robust growth a tad challenging. Shares of Nvidia have already taken a tumble dropping a rather disconcerting 22% this year. It seems the market like a particularly temperamental Hippogriff is easily spooked. Let us hope this is merely a temporary blip and not a sign of darker times ahead.

AMD Feels the Chill

And the bad news does not stop there! Mr. Arcuri in a display of even handed gloom has also lowered his price target for AMD suggesting that this export ban may affect them even more profoundly. Apparently AMD's MI308 products specifically designed for the Chinese market are now subject to similar restrictions. This implies a revenue impact of a cool $1 billion assuming that $500 million of these charges are related to inventory and when assuming an approximate 50% gross margin. One might say it’s a veritable feast for the goblins at Gringotts!

Expert Insights from the New York Stock Exchange

For those of you brave enough to venture forth CNBC is hosting an exclusive event at the New York Stock Exchange! A chance to mingle with financial oracles and gain some insider knowledge. Although I must confess I much prefer a quiet cup of tea and a lemon drop to the hustle and bustle of the trading floor. 'Nitwit! Blubber! Oddment! Tweak!' As I always say. But perhaps I'll send Fawkes with a strongly worded letter.