'Sputnik Moment'—Nvidia stock is caught in the Trump tariff crosshairs
Nvidia (NVDA) wowed investors last week with surging sales growth and new data center investments, but the company worries that Trump’s tariffs could knock the chipmaker off its stride.
Despite reporting 78% sales growth in the final quarter of 2024, NVDA stock plunged 8.5% on Feb. 27. The post-earnings selloff erased more than $270 billion in Nvidia’s market cap.
It’s no coincidence that NVDA stock has nosedived 11% since Jan. 20, the day President Trump took office. Trump has vowed to impose another 10% tariff on Chinese goods on top of the 10% tariff already in place.
The hangover from the China trade war, which began in Trump’s first term and continued under President Joe Biden, has basically halved Nvidia’s Chinese revenue. Now, Nvidia warns things could get worse under Trump 2.0.
“Tariffs, at this point, it’s a little bit of an unknown,” Nvidia’s CFO Colleen Kress told investors last week. “It’s an unknown until we understand further what the U.S. government’s plan is, both its timing, it’s ‘where’ and how much.”
In any case, Nvidia doesn’t expect much growth from its China business, which currently accounts for roughly 15% of companywide sales. “Absent any change in regulations, we believe that China shipments will remain roughly at the current percentage,” Kress said.
Nvidia CEO Jensen Huang tried to smooth things over with Trump when he visited the White House in late January. The two reportedly discussed “strengthening U.S. technology and AI leadership.” Although Trump seemed receptive, the meeting ended with the president vowing to “put tariffs on chips.”
However, Trump isn’t stopping there.
As Bloomberg reported, the president is pressuring America’s allies to expand their restrictions on China’s semiconductor industry to prevent Beijing from gaining supremacy in the AI race.
A full-blown chip war with major implications
Nvidia and other chipmakers currently find themselves in the middle of a full-blown chip war between the United States and China.
America may have had its “Sputnik moment” in January when China’s DeepSeek emerged from the shadows to deliver an arguably better large language model (LLM) than OpenAI’s ChatGPT—and at a tiny fraction of the development costs, no less.
High-performance semiconductors aren’t just used to power LLMs but are key inputs for sophisticated military systems, including missiles and torpedoes.
Advanced chips have become an important topic for national security, which is why efforts to control China’s access to this technology are on the front burner again.
Because of this, the chip war extends far beyond any current administration. Although Trump has upped the rhetoric against Beijing, it was America under Joe Biden that initially put export limits on semiconductor sales to China.
Trump may be picking up where Biden left off. According to Bloomberg, the president is considering adding licensing requirements on certain Nvidia chips, which would limit the quantity and type of chips that can be shipped off to China and other countries.
In the meantime, investors should brace for “significant new China AI and export license restrictions,” according to Mizuho Securities analyst Vijay Rakesh.