NVIDIA Corporation [NASDAQ: NVDA]: The trade war between the U.S and China continues to complicate global trade. In one of its more recent moves, the U.S has banned the sale of chips to 5 Chinese supercomputer companies. This will hurt the business that NVDA does with one of China’s major supercomputer companies, Sugon. Sugon relies heavily on NVDA chips for its supercomputers. This means that the ban will likely force the company and other Chinese data centers to turn to domestic chips makers for their processors.
In spite of these challenges, NVDA seems to look bullish in the short-term on the charts. In Wednesday trading, NVDA was up by about 5%, and this momentum seems to be sustained in pre-market trading today. This momentum is building up because besides the ban news, NVDA has a pretty diversified business and is also big in gaming and in cryptocurrency mining.
These factors explain NVDA’s price action at the moment. On Wednesday, the stock had a huge run up before entering a consolidation phase for the better part of the day. If its pre-market price action continues and it breaks above the day’s high of $161.72, then it could trade in bullish territory in the day, as it will have formed a bullish continuation pattern. However, if it doesn’t push above yesterday’s high when markets open, then it could range, as investors wait out the impact of the ban by the U.S on Chinese supercomputer companies.
There are long-term impacts of this ban that may not be easy to quantify. Some of them include the fact that Chinese companies could move to invest more in developing the domestic chip market, as can be seen in Huawei’s moves to develop its own AI chips. This would hurt the competitiveness of U.S chip makers such as NVDA and Intel in the long run.
Regardless, and as I always say, keep an eye on the charts as they tell the true story of the stock!