Shares of semiconductor stock Nvidia (NVDA -0.01%) fell for a second straight trading day on Monday, continuing Friday's post-earnings sell-off. But in contrast to last week, when at least some of the bad news about Nvidia came from Nvidia itself, today the news comes from another source entirely: China.
And it's driving Nvidia stock down 2% as of 1:30 p.m. ET on Monday.
Last week, Nvidia spooked the semiconductor market when it announced that second-quarter sales grew only 3% year over year, and earnings collapsed 72% to just $0.26 per share. Worse, Nvidia cut its guidance again, predicting third-quarter sales will come in $1 billion short of expectations at $5.9 billion.
The good news is that Nvidia says it has made progress clearing out old inventory, and is hoping to get profit margins, at least, growing again in the third quarter. But that brings us to today's news.
As the South China Morning Post reported this morning, China's Semiconductor Manufacturing International Corporation, or SMIC, has achieved a technological breakthrough in the production of semiconductor chips in China. According to the newspaper, SMIC has advanced its capability to produce 7nm semiconductors. What's more, SMIC shrank the size of these transistors from 14nm to 7nm faster than Taiwan Semiconductor Manufacturing and Samsung managed to do, and without the use of the most advanced production equipment that has been denied it by U.S. export restrictions.
This report from the South China Morning Post has not yet been confirmed elsewhere, and is also lacking in much detail -- such as, for example, how good are the chips SMIC can produce in real-world conditions, and how quickly will the company be able to scale up production both domestically and internationally?
But assuming the answers to these questions are at least "good enough" and "pretty soon," it could be that Nvidia will soon have another low-cost competitor to worry about. What's more, it will have a competitor that will be favored by the government of China, which is the second-biggest market for Nvidia chips in the world, accounting for $7.1 billion of the company's $26.9 billion in revenue in 2021, according to data from S&P Global Market Intelligence.
This news -- even if it's still little more than a rumor at this stage -- seems big enough to justify a 2% sell-off in Nvidia stock, and maybe even more.