Shares of computer technology company Nvidia (NVDA -2.89%) lost 4.1% of their value on Friday, according to data from S&P Global Market Intelligence, giving back a sizable piece of their gains logged earlier in the week. The move follows the progress of legislation that would favor the nation's entire microchip industry, but as it turns out, not necessarily Nvidia.
Don't look for a specific reason Nvidia's stock took a tumble on Friday. You won't find it. Rather, look at the evolution of headlines over the course of the week.
On Tuesday, the U.S. Senate decided to move forward with a bill that will potentially provide the country's chipmakers with $52 billion worth of funding to help them lay the groundwork for establishing more domestic production facilities. The bill in question has not yet become law, but given the degree of bipartisan support for the bill's intention, its ultimate passage seems likely. California-based Nvidia initially appeared to be one its beneficiaries, driving its stock to a weekly gain of as much as 15% as of Thursday.
Now, however, things aren't quite as clearly bullish. The stock's 28% rally off of its early July lows and the recent realization that the most recent revision of the bill actually favors Nvidia's rivals like Intel (INTC -0.11%) without providing as much benefit to Nvidia itself is giving recent Nvidia buyers pause. The idea of subsidizing the nation's chipmakers is now drawing out congressional critics as well, calling into question just how much support the intended legislation actually has regardless of which companies it benefits most.
Such news-based volatility is nothing new. Investors frequently come to a conclusion based on a limited amount of information, but as awareness and understanding improve, reality changes minds. Friday's marketwide weakness didn't help Nvidia shares either.
When all is said and done, this week's prospective legislative development doesn't actually change much either way for the company or the country's semiconductor industry in general. Nvidia doesn't need congressional help to expand its domestic production capacity, and even getting such assistance doesn't guarantee it will lead to additional revenue. Moreover, it could be years before the legislation in question makes its intended impact.
In other words, this week's headlines are no reason to buy or sell Nvidia shares. The stock's still a buy at its beaten-down price simply because the broken supply chain will eventually be mended, and Nvidia is very well positioned to lead the artificial intelligence hardware market's growth.