China shifts its AI chip strategy, NVIDIA's stock price fluctuates amid mixed signals

China’s decision to allow major AI companies like DeepSeek to purchase H200 chips has caused a significant ripple in the market. While NVIDIA shares received short-term support from this policy shift, their price remains volatile due to multiple factors. Amid this week’s tech sector earnings season, investors are divided on the long-term implications of this development.

China’s Chip Supply Policy Brings a Turning Point for DeepSeek

The announcement that regulators have permitted DeepSeek to purchase H200 chips marks a major change from China’s previous strict restrictions. Just before this decision, companies like Alibaba, ByteDance, and Tencent also received approval to buy similar chips, signaling a clearer investment stance toward domestic AI industry development.

According to Reuters, several Chinese firms are expected to acquire up to 400,000 chips from NVIDIA, with a price of $27,000 per chip, potentially totaling over $10 billion. While the exact number of chips DeepSeek will purchase has not been officially disclosed, estimates suggest it could be in the thousands.

This policy reflects China’s strategic goal to foster its domestic semiconductor industry. However, domestic companies like Huawei, MetaX, and Moorespeed are also receiving development support, indicating a selective rather than fully open market. China continues to strategically restrict NVIDIA’s chip supply, and this approval appears to be part of that broader framework.

Data indicates that orders from Chinese companies could exceed 2 million units, far surpassing current stock levels of 700,000 units.

Major Customer Earnings Reports Shake NVIDIA’s Market

NVIDIA’s stock, trading around $193, is heavily influenced by earnings reports from key customers. Microsoft, its largest client, fell 12% on Thursday, marking its largest decline in five years. The company cited slowing growth in its cloud computing segment for Q2 as a concern, despite record capital expenditures of $37.5 billion.

Most of this spending went toward GPU procurement for data center operations. The slowdown in cloud growth could signal future reductions in capital spending, posing a long-term concern for NVIDIA. Microsoft also reported progress in developing its own ASIC chips.

In contrast, Meta Platforms announced strong earnings, with its stock soaring over 10%. This performance reflects confidence in AI investments and indicates steady progress in generative AI projects.

Meanwhile, Amazon, ahead of its upcoming financial report, announced significant layoffs, hinting at a slowdown in AWS. Industry attention also focuses on OpenAI, which has shown robust performance and is raising funds from multiple large investors. Microsoft and others plan to invest $60 billion in the company, while SoftBank is securing similar amounts, and Middle Eastern investors are expected to raise over $50 billion.

Technical Analysis Reveals Risk Factors

Analysis of the daily chart shows NVIDIA’s stock has been trading within a narrow range over the past few months. The current level around $192 is only modestly above the year-to-date low of $177. The stock remains just above the 50-day EMA, and according to Murrey Math Lines analysis, it has pierced all levels of Strong, Pivot, and Reverse.

This suggests a potential shift in momentum but also presents significant technical warning signs. Notably, the stock appears to be forming a classic head-and-shoulders pattern, widely recognized as a bearish reversal indicator.

Additionally, technical indicators show bearish divergence. The Percentage Price Oscillator (PPO) is trending downward, and RSI continues to decline. These signals strongly suggest increased short-term downside risk.

The most realistic scenario is that the stock may experience short-term downward pressure before rebounding later in the year. Similar price movements have been observed in other leading AI-related companies like ServiceNow and Perplexity after sharp declines. While China’s chip policy shift could be a long-term positive, avoiding a near-term correction seems unlikely.