Nvidia Corp. (NASDAQ: NVDA) stock climbed 11.86% the week of September 9. This was a welcome relief for investors who watched NVDA stock drop approximately 20% after it reported earnings on August 28.
Many investors presume that the lift in technology stocks in general, and NVDA stock in particular, is a way of frontrunning the anticipated interest rate cut that is likely to come at the conclusion of the Federal Open Market Committee (FOMC) meeting on September 18.
However, another explanation may come from a piece of news that could spark a sell the news event. The United States government is considering allowing NVIDIA to export its high-speed graphic processing units (GPUs) to the kingdom of Saudi Arabia. The company’s H100 and H200 chips are essential for supporting artificial intelligence (AI) applications.
Why Is This News Significant?
The obvious answer for shareholders is the access it gives NVIDIA to a new market. Saudi Arabia is competing with the United Arab Emirates (UAE) to take the lead in AI. However, both countries lack the advanced AI hardware that is needed to train large language models (LLMs).
That means, despite its close ties to China, Saudi Arabia needs access to NVIDIA’s GPUs to develop its AI services. For NVIDIA, if the company’s stock is going to keep justifying its premium multiple, it will have to continue to deliver outsized growth.
It's a win-win, right? Well, anytime you’re dealing with national security, it gets complicated. The issue that may still halt the sale is that the U.S. government needs to verify that Saudi Arabia has appropriate safeguards in place to prevent China from gaining access to NVIDIA’s GPUs via the cloud.
Saudi Arabia is making efforts to meet these security requirements, but the takeaway for investors is that this may take some time. And it’s unlikely that the U.S. will take a definitive stance until after the November general election.
Did the Rumor Fuel the Rally?
As investors recall, NVDA stock rallied strongly before it reported earnings on August 28, 2024. However, the report itself underwhelmed investors. This created a “sell the news” event in which the stock dropped approximately 20%.
It's possible that a similar setup is happening now. Most of the recent NVIDIA stock gains came after the middle of the trading day on September 11. That coincided with the news about the company being permitted to export chips to Saudi Arabia. If that’s the case, then investors may expect the actual approval to become a reason for investors to sell.
That’s the bad news. The good news is that the recent rally in NVDA stock has the stock settling right around its 20- and 50-day moving averages.
If the stock pushes above those averages before the Fed announcement, that could form a solid support level. However, the options chain for NVDA stock shows a substantial volume of both call and put options for September 20 around the $125 price target. Investors should expect volatility from NVIDIA stock this week.
Analysts Remain Bullish on NVDA Stock
Since the earnings report, analyst sentiment has been overwhelmingly bullish on NVDA stock. And the NVIDIA analyst forecasts on MarketBeat show that Bank of America (NYSE: BAC) reiterated its Buy rating and $165 price target for the stock. That’s 16% higher than the consensus price of $142.10
However, it’s important to note that these are 12-month price targets, not 12 weeks. The future of AI still belongs to NVIDIA for now. But the short-term market volatility may keep NVDA stock within a narrow range.
One area of volatility comes from NVIDIA’s chief executive officer (CEO) Jen Hsun Huang, who has sold shares on five separate occasions since the company’s earnings report. However, each of these transactions is part of a Rule 10b5-1 trading plan that Huang adopted in March 2024.
Will some investors care about that? Probably not. Should they? Absolutely. It’s a reminder that insiders have many reasons to sell a stock and many of them have nothing to do with their convictions about their company’s stock.
