Semiconductor maker Nvidia (NVDA -1.71%) has been a darling of Wall Street over the last several years. Shares more than doubled in 2021 alone, and have more than tripled over the last three years. But investors have soured on the stock lately, with Nvidia shares down over 14% this week as of early Friday morning, according to data provided by S&P Global Market Intelligence.
Last week the company reported its fiscal 2023 second-quarter results for the period ended July 31 -- which it had previously warned would be below expectations. Investors expected that bit of bad news, but things took a turn for the worse this week.
Shares hit a 52-week low on Thursday when the company reported it has the potential to lose up to $400 million in data center revenue in the current quarter after the U.S. government imposed a new license requirement that restricts some semiconductor chips from being sold in China. Nvidia is not the only company affected by the new requirement, and it's not clear if some Chinese customers can substitute unrestricted chips that would ease the revenue impacts. But investors sold the stock without waiting for more information.
Panic-selling can provide a good opportunity for long-term investors to buy shares at lower prices. But Nvidia's business was already in transition prior to these new impacts. Its recently reported quarterly results showed a 19% drop in revenue compared to the previous quarter. Year-over-year revenue still grew 3%, but investors had bid Nvidia shares up to a valuation that priced in much stronger annual growth.
Its data center segment represented the majority of sales in the last quarterly period, growing 61% over the prior-year period. The news this week that this segment could take a hit from the new government restrictions was particularly troublesome for some shareholders.
It may take some time for the stock to settle from this news, and some questions remain about Nvidia's growth path and valuation. But for some investors, this week's drop could be a good time to get shares of a leader in a growing sector.