Nvidia stock (NASDAQ:NVDA) tumbled by close to 9% in Monday’s trading, with the broader Nasdaq index sliding by a little over 2%. While the broader market sell-off comes as U.S. President Donald Trump confirmed that his administration will enforce tariffs of 25% on imports from Canada and Mexico starting from Tuesday, Nvidia’s decline was compounded by investigations into Chinese buyers allegedly bypassing U.S. export controls on advanced semiconductor chips. So how do these developments impact Nvidia stock?

Image by Jacek Abramowicz from Pixabay

Tariffs Will Likely Have a Limited Impact

We don’t see the Trump Administration’s initial round of tariffs materially impacting Nvidia. Nvidia’s chips are largely fabricated by TSMC in Taiwan, although the company has some systems and computers that use its chips, which are produced in other regions, including Mexico. It’s possible that these parts of the business could be affected to some extent. However, the core of Nvidia’s business, its high-margin GPU unit, should remain largely unaffected. However, last month, President Trump also hinted at a “25% or higher” tariff on all semiconductor chips the United States imports. This is something investors will need to watch more closely, although we don’t think this will also have a very sharp impact on Nvidia’s bottom line. Nvidia had an adjusted gross margin of about 75.5% as of 2024, meaning that the cost of the products it imports is likely less than a quarter of its revenues. Moreover, Nvidia derives just about 47% of its sales from the U.S., meaning that the margin impact is likely even more limited. Additionally, TSMC, Nvidia’s primary contract manufacturer for its GPUs, has outlined plans to invest around $100 billion into new chip-making facilities in the United States. Nvidia officials have indicated that they would manufacture chips at these new facilities, which might help Nvidia stave off any threats of tariffs in the longer run. However, if you seek upside with less volatility than a single stock, consider the High-Quality portfolio, which has outperformed the S&P 500 and achieved returns greater than 91% since inception.

China’s AI Loophole A Concern

The U.S. has imposed export control curbs on most of Nvidia’s latest AI chipset offerings to China, except the H20 chips, due to national security concerns. However, there have been reports that resellers in the gray market are using entities registered outside of China to buy servers that use Nvidia’s latest offerings from companies located in various countries, including Singapore, Malaysia, Taiwan, and Vietnam. This is a valid concern, given that Singapore has become Nvidia’s second-biggest market, accounting for about $23 billion in sales in FY’25, or about 18% of revenue, up from a mere $2.3 billion, or 8% of revenue, back in FY’23. Now, Singapore has announced an investigation into these potential loopholes.

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The rise of China’s DeepSeek open-source AI model also indicates that the country is making considerable progress in AI, with leading startups as well as major players such as Alibaba and Baidu investing heavily in AI infrastructure. If Chinese companies are indeed bypassing sanctions, and if stricter enforcement closes them, this could impact Nvidia’s revenues.

Now, the increase in NVDA stock over the last 4-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 125% in 2021, -50% in 2022, 239% in 2023, and 171% in 2024. The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could NVDA face a similar situation as it did in 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

We value Nvidia stock at about $101 per share, roughly 20% below the current market price. See our analysis of Nvidia valuation: Expensive or Cheap. There are a couple of reasons why we are negative on the stock at the moment. We see a possibility that the “fear-of-missing-out” driven AI wave seen over the last two years could ease off due to diminishing incremental performance gains from larger models and also as the availability of high-quality training data becomes a bottleneck. This shift toward more efficient models could compound the impact of a potential slowdown for GPU makers such as Nvidia. Moreover, Nvidia also faces mounting competition from the likes of AMD as well as its own customers such as Amazon, who have been focusing on developing and deploying their own AI chips. While Nvidia does have a comprehensive software ecosystem around its AI processors, including programming languages that should help it better lock customers into its products, the company could face pressure. Nvidia’s premium valuation may not fully reflect these risks at the moment.

[1] Returns as of 3/4/2025
[2] Cumulative total returns since the end of 2016

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