It appeared that everything was going well for him.
Nvidia
(NASDAQ: NVDA)
Last year, the chip designer experienced immense demand for their new Blackwell architecture, leading to unprecedented records in both revenue and profits—prompting investors to rush into purchasing the stock.
Dow Jones Industrial Average
(DJINDICES: ^DJI)
Even extended an invitation to Nvidia to join, and this new addition posted the highest gains for the year within the index, surging over 170%.
However, this year has proven far more challenging for the AI industry leader. President Donald Trump introduced an extensive proposal to impose taxes on goods imported from various nations globally, which leads to increased expenses for businesses importing raw materials and products. As it turns out, Nvidia falls into this category since it produces the majority of its AI processors in Taiwan.
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Of course, Nvidia isn’t alone in this situation. Most tech companies rely heavily on other countries for the manufacturing of their products, and companies in other sectors, from retail to automobiles, also use imports.
Nonetheless, Nvidia has garnered significant interest due to its robust financial performance recently, with this success being attributed to overseas manufacturing. While tariffs certainly pose a hurdle for Nvidia and similar companies, I anticipate that Nvidia will overcome these challenges and see its stock price rise dramatically.
1. Nvidia has an edge over the competition.
Nvidia has proved
to be proactive
In numerous instances in the past, and it’s heading down that path again this time as well. The firm primarily manufactures its AI chips in Taiwan through
Taiwan Semiconductor Manufacturing
Although recently, some of the production has been shifted to TSMC’s facility in Arizona. TSMC supports this move towards U.S.-based manufacturing and has recently raised its investment in American-based factories to $165 billion. This will likely aid Nvidia’s expansion within the country.
Earlier this month, Nvidia revealed a significant step that might considerably decrease its vulnerability to import taxes gradually. The firm has initiated a program aimed at having all of its AI supercomputers manufactured solely within the U.S.
The firm plans to produce up to $500 billion worth of AI infrastructure via domestic collaborations over the next four years. These efforts will occur at TSMC’s current facility in Arizona, and Nvidia is constructing two sites in Texas alongside partners.
Foxconn
And Wistron. The firm anticipates production will increase at these facilities over the next 12 to 15 months.
This won’t protect Nvidia from
potential tariffs
This could come into play soon, yet it ought to calm investor concerns that any tariff-induced pressures on profits will only be temporary.
2. The tariffs might not be harsh.
Initially, Trump introduced tariffs encompassing all imports but later made an exemption for electronics. This allowed his administration to establish distinct tariff levels specifically for this sector. Currently, items like smartphones and semiconductors remain duty-free. Following significant backlash from corporations and experts who voiced their concerns through various platforms including social media and news outlets regarding the detrimental impact of the original proposal on the industry, the president decided to exclude these electronic goods.
Trump’s move to exempt these goods temporarily and consider a new tariff level suggests eventual tariffs may not be set at extreme levels. Another positive sign is the government’s negotiations with countries regarding the general tariff plan. All of this shows flexibility exists, so
tech companies
may ultimately discuss further if they find the government’s proposal inadequate.
My prediction
Let’s return to my forecast. The factors mentioned earlier lead me to believe that Nvidia will overcome the challenges posed by tariffs. What this means is that these duties are unlikely to substantially impede their earnings growth in the long run. We should remember that currently, Nvidia boasts robust profit margins from its sales.
gross margin
above 70%, and probably can adjust in different aspects to handle increased expenses over the short term.
Although we might observe a reduction in profit margins, I do not anticipate this downturn to be significant or prolonged. Despite the substantial investment in the U.S. manufacturing initiative, it has the potential to enhance efficiency gradually and reduce vulnerabilities associated with supply chain interruptions.
As everything comes together, I wouldn’t be shocked if Nvidia’s share value rises sharply.
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Adria Cimino
has no holdings in any of the aforementioned stocks. However, The Motley Fool holds positions in and advocates for investing in Nvidia and Taiwan Semiconductor Manufacturing. Additionally, The Motley Fool discloses that they have a
disclosure policy
.
