Why Nvidia Stock Continues to Plunge Ahead of Earnings

Nvidia (NASDAQ: NVDA) will release one of the most highly anticipated earnings reports tomorrow afternoon. The artificial intelligence (AI) chip leader has outpaced its own guidance by a wide margin all year.

Yet investors have been selling the stock in droves lately. Shares are down more than 11% in the last month, including a 3% decline today, as of 11:37 a.m. ET.

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The catalyst for today's drop may be from investors thinking Nvidia's trend of exceeding sales forecasts may soon come to an end. That's because the Trump administration is reportedly seeking to further tighten restrictions on U.S. semiconductor chip sales to China.

Nvidia's impressive sales streak

Nvidia has repeatedly beaten its own sales expectations as large tech companies line up to purchase its advanced AI chips and software platforms. Companies need Nvidia's advanced hardware to build smarter and more complex AI models.

Driven by its robust data center segment, Nvidia has beaten the midpoint of its own sales guidance by at least $2 billion in each of its first three fiscal 2025 quarters. It expects fiscal fourth-quarter sales of about $37.5 billion. That's up from the $35.1 billion it reported in the prior quarter. It's also 70% higher than the $22.1 billion in revenue recorded in the prior year period.

But reports today say that the Trump administration is looking to tighten the controls on advanced AI chip sales to China begun under former President Biden. Nvidia has been able to continue selling its older or modified chips under the previous restrictions as demand remained strong even for that hardware.

Tighter restrictions meant to limit China's technological prowess could impact Nvidia's sales growth. New regulations haven't yet been announced, so CEO Jensen Huang may not even discuss the topic with Nvidia's earnings report tomorrow.

What's ahead for Nvidia?

But some investors may be happy taking profits after Nvidia's amazing 440% gain over the last three years. I think Nvidia's market for those chips, as well as its other products, is big enough to navigate any of those headwinds, and more growth lies ahead.

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Howard Smith has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.