Nvidia stock has fallen around 5% in the past week and is currently down nearly 12% over the last month. So, what has triggered the recent sell-off in Nvidia shares?
China Headwinds for Nvidia
Nvidia is facing mixed developments in China. According to the Financial Times, China’s National Development and Reform Commission has introduced new energy-efficiency standards for advanced chips used in data centers. These new regulations could effectively prevent Nvidia’s H20 chip from being used by Chinese firms expanding or building new data centers. The H20 is Nvidia’s leading chip tailored for China, featuring scaled-back capabilities to comply with U.S. export restrictions on advanced semiconductors. Compared to Nvidia’s top-tier Blackwell processors available elsewhere, the H20 is less advanced.
Resellers operating in the gray market have reportedly been using entities registered outside of China to acquire Nvidia’s newest chips, including the Blackwell GPUs—which are prohibited from being sold to Chinese customers—via companies based in Singapore, Malaysia, Taiwan, and Vietnam. Recently, Singapore charged three individuals in connection with a fraud case involving the suspected resale of Nvidia chips through Malaysia to China. Under pressure from the U.S., Malaysia is now working with both the U.S. and Singapore to monitor the distribution of Nvidia’s high-end chips and to strengthen semiconductor regulations. These concerns are particularly noteworthy, as Singapore has emerged as Nvidia’s second-largest market, contributing approximately $23 billion in revenue for FY’25 (ended January 26), accounting for 18% of total sales—an increase from $2.3 billion, or about 8% of revenue, in FY’23. In contrast, China officially made up 13% of revenue in FY’25. Increased regulatory attention on these transactions could have implications for Nvidia stock.
Data Center Demand Concerns
There is increasing skepticism about the sustainability of the current AI spending surge. Evidence suggests that the massive capital allocation by major U.S. tech companies could begin to taper. In January, Chinese startup DeepSeek introduced an AI model that operates at a significantly lower cost than those of most Western competitors. This development could encourage companies to shift away from hardware-heavy strategies and focus on more efficient solutions. Moreover, returns from AI investments have been underwhelming so far, causing concern among investors—particularly if the U.S. economy weakens. With inflation expected to rise again and economic growth potentially slowing under new tariffs introduced by President Donald Trump, market apprehensions are growing. Reports this week noted that Microsoft canceled several data center projects across the U.S. and Europe in the last six months, citing demand not matching supply. Meanwhile, Alibaba’s Chairman Joe Tsai also recently warned of a potential bubble in AI and data center investments.
The increase in NVDA stock over the last 4-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 125% in 2021, -50% in 2022, 239% in 2023, and 171% in 2024. The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period.
Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could NVDA face a similar situation as it did in 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?
Nvidia Stock’s Volatility
We currently value Nvidia stock at around $101 per share, which is roughly 10% below its current market price of $112. See our analysis of Nvidia valuation: Expensive or Cheap. There are several reasons behind our slightly bearish view on the stock right now. One is the potential decline in the “fear-of-missing-out” driven AI rally seen over the past two years, due to diminishing performance returns from increasingly large models and challenges in accessing high-quality training data. A transition toward more efficient AI models could amplify headwinds for GPU producers like Nvidia. Additionally, Nvidia may encounter increased competition from companies such as AMD and even some of its own customers like Amazon, which are developing and deploying proprietary AI chips. While Nvidia benefits from a strong software ecosystem that complements its AI hardware—helping retain customers—it may still face pressures. At its current premium valuation, the stock might not fully account for these risks.
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