'Fast Money' traders answer viewer questions on Nvidia

Key Concepts

• Nvidia (NVDA): A semiconductor company, particularly known for its AI chips.
• Export Bans: Restrictions on exporting certain AI chips to China.
• Inventory Problem: Potential issue due to unsold chips designed for the Chinese market.
• H20 Chips: Specific type of Nvidia chips designed to circumvent export bans.
• Trailing Basis: A backward-looking financial metric.
• Semi ETF (SMH): An exchange-traded fund that tracks the performance of semiconductor companies.
• Ripcord: A metaphor for selling a stock quickly to limit losses.

Nvidia's Stock Performance and Export Restrictions

• Nvidia's stock experienced a decline, ending the week 8.5% lower.
• The company announced a $5.5 billion charge due to limitations on exporting one of its AI chips to China.
• The semi ETF (SMH) also experienced a decline during the week.

Viewer Question and Trader Responses

• A viewer named Chuck from Goodyear, Arizona, inquired about whether to sell or hold Nvidia stock given the $5.5 billion charge related to exports.
• Trader Guy Adami advised Chuck to "pull the ripcord" and sell the stock, citing Nvidia's poor trading performance and lack of a significant bounce after holding the August low of $90.
• Trader Karen Finerman agreed with Adami, suggesting that the stock could decline to the $75 level seen in April. She also mentioned that Nvidia's revenue concentration with three major clients makes it vulnerable to spending cutbacks.

Revenue and Inventory Concerns

• Finerman highlighted that 30% of Nvidia's revenues come from three customers, making the company susceptible to revenue declines if these customers reduce their spending.
• The $17 billion worth of H20 chips, designed to circumvent export bans for the Chinese market, pose a significant inventory problem if they cannot be sold.
• These chips represented 13% of Nvidia's sales last year, and Finerman anticipates a 50% decline in their sales.

Potential Overshoot to the Downside

• Finerman drew a parallel to Nvidia's previous performance, noting that the stock had overshot to the upside and could now overshoot to the downside.
• She pointed out that Nvidia's stock had previously declined by 70% from its highs in 2021 to its lows in 2022, suggesting a similar potential for decline.

Conclusion

The traders expressed a bearish outlook on Nvidia's stock due to export restrictions, potential revenue declines, and inventory problems. They advised viewers to sell the stock, anticipating a further decline in its price. The discussion highlighted the significant impact of geopolitical factors and customer concentration on Nvidia's financial performance.