What happened
Nvidia (NVDA 3.77%) stock dropped in Wednesday trading and is down 2% as of 11 a.m. ET, and bad news out of China may be the reason.
This morning, Samsung announced that "due to the ongoing COVID-19 situation, we have decided to temporarily adjust operations at our manufacturing facilities in Xian, China."
Image source: Getty Images.
So what
What does a Samsung plant in China have to do with a sliding stock price for Nvidia? Perhaps something, but perhaps nothing.
Samsung's press release was laconic in the extreme -- just 66 words long -- but we know from Nvidia's 10-K filings that Samsung is a supplier of semiconductor wafers to Nvidia (i.e., a contract manufacturer for the company). This being the case, it's possible that investors are inferring that a production slowdown at Samsung will cause a production slowdown for Nvidia as well.
Now what
That's not necessarily true, however. As the South China Morning Post explains in a report today, Samsung's two Xian factories are responsible for producing "15% of global NAND flash production capacity." That is to say, while they manufacture semiconductor wafers, they manufacture a specific kind of wafer -- the kind used for making memory chips rather than graphics chips.
Assuming this is the case, and that Samsung's production of graphics chips will not be affected, problems at this particular plant may not affect Nvidia at all.
On the other hand, if problems in one Chinese city can cause ripples in the supply chain for one type of semiconductor, it's possible that problems in other cities could cause other ripples that will affect Nvidia. That's a risk to keep an eye on, but it's not necessarily a good reason to sell Nvidia stock today.
