Nvidia stock drops 3.7% as Alibaba tests rival AI chip

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Nvidia stock drops

Highlights

- Nvidia shares declined 3.7% following a mixed reaction to its Q2 earnings and rising concerns about AI demand sustainability.

- Weak guidance from Dell and reports of Alibaba developing rival AI chips added pressure to the broader semiconductor sector.

- Nvidia's lack of H20 chip sales to China and growing reliance on a few key customers have intensified investor caution.

From a technical standpoint, the price has pulled back from recent highs near $500 (pre-split) and now appears to be consolidating around the lower end of its short-term range. After the 10-for-1 stock split in June, NVDA adjusted to the $120–$140 zone before surging past $170. Now, the $170 level is acting as a near-term support, while resistance is expected around $180 to $185. The stock tested $179.70 during the August 30 session before retreating, suggesting strong selling pressure near that upper bound.

Short-term momentum indicators, including the Relative Strength Index (RSI), have begun to cool, falling from overbought conditions in early August to more neutral territory. NVDA remains comfortably above its 50-day moving average, which is currently trending near $160, and well above the 200-day moving average. This implies the broader uptrend is still intact, although the pace of gains has moderated.

Nvidia stock price dynamics (June 2025 - September 2025). Source: TradingView

Volume has also surged post-earnings, with over 243 million shares traded in the last session, more than triple the 30-day average, indicating heightened volatility and possible repositioning by institutional investors. While price action appears bearish in the short term, the broader trend remains constructive unless $170 is breached on high volume.

China tensions and Dell outlook drag on Nvidia

Nvidia and broader U.S. chip stocks came under pressure, capping off a losing week for the sector despite Nvidia’s headline Q2 earnings beat. Shares of NVDA fell more than 3% on Friday and closed the week down approximately 2%, as fresh concerns about geopolitical risk, weakening enterprise demand, and increased competitive threats emerged.

Two developments on Friday triggered the selloff. First, Dell Technologies, a major server maker and customer of Nvidia’s AI GPUs, issued a disappointing Q3 earnings outlook that missed Wall Street expectations. The weak forecast raised doubts about near-term demand for data center infrastructure, especially in the AI-heavy enterprise segment.

Second, The Wall Street Journal reported that Alibaba is testing its own chip for AI inferencing, potentially challenging Nvidia’s position in the Chinese market. The report also noted that a number of Chinese tech companies are actively developing domestic alternatives to Nvidia’s H20 chips, a direct consequence of escalating U.S.-China tensions. The H20 was designed to comply with U.S. export restrictions, but Nvidia disclosed this week that it made zero sales of the chip into China last quarter, pending regulatory clarity.

Volatility ahead as market recalibrates AI narrative

In the short term, Nvidia appears to be entering a consolidation phase. Assuming macroeconomic conditions remain stable and no new regulatory shocks emerge, the base case sees the stock oscillating between $170 and $180 over the coming weeks. Traders are likely to adopt a wait-and-see approach, with buying interest concentrated near the lower end of this range.

A sustained move above $180, particularly if accompanied by strong volume and renewed bullish commentary from major brokerages, could open the path to $190–$200. This scenario would likely require upside surprises in AI chip demand or positive news about Blackwell production timelines. Such a breakout would also signal renewed institutional confidence in Nvidia’s medium-term growth story, despite geopolitical headwinds.

Despite a softer-than-expected Q3 revenue forecast, analysts remain bullish on Nvidia, with at least 10 major firms raising their 12-month price targets. The average target now sits at $202.60, reflecting optimism around strong Blackwell chip demand and sustained AI infrastructure investment.

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