Nvidia Stock Rises Amid Uncertainty Over Trump’s Tariffs

Nvidia's stock has been on a rollercoaster ride in recent weeks, with the company's shares surging 64% since January 2025, adding over $700 billion in market value. This surge comes despite the looming threat of tariffs on semiconductor chips, which could significantly impact Nvidia's supply chain and operational costs. However, the company's strong financial performance and strategic investments suggest that it is well-positioned to weather the storm.

The potential tariffs on semiconductor chips could impact Nvidia's supply chain and operational costs in several ways. Firstly, tariffs could increase the cost of importing chips, which might affect Nvidia's high-margin GPU unit. However, the impact is likely to be limited because Nvidia's adjusted gross margin was about 75.5% in 2024, meaning that the cost of the products it imports is less than a quarter of its revenues. Additionally, Nvidia derives just about 47% of its sales from the U.S., further limiting the impact of tariffs on its bottom line.

To mitigate these effects, Nvidia could consider several strategies. One potential strategy is to shift production to the United States. 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. This move could help mitigate tariff risks long-term and ensure a more stable supply chain.

Another strategy could be to diversify its supply chain. By sourcing chips from multiple regions, Nvidia could reduce its reliance on any single supplier or region, thereby minimizing the impact of tariffs. This approach would also help Nvidia maintain its operational efficiency and cost-effectiveness.

Given the current political climate and potential tariffs, Nvidia's stock performance could be influenced in both the short term and the long term. In the short term, the stock might experience volatility due to immediate market reactions to tariff announcements and geopolitical tensions. For instance, Nvidia's stock tumbled by close to 9% in Monday’s trading, coinciding with the broader Nasdaq index sliding by a little over 2%. This downturn was influenced by U.S. President Donald Trump’s announcement of a 25% tariff on imports from Canada and Mexico, as well as investigations into Chinese buyers allegedly circumventing U.S. export controls on advanced semiconductor chips.

In the long term, the impact of tariffs on Nvidia's stock performance is likely to be more limited. Nvidia's chips are largely fabricated by TSMC in Taiwan, and the company has some systems and computers that use its chips, which are produced in other regions, including Mexico. However, the core of Nvidia’s business, its high-margin GPU unit, should remain largely unaffected. 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.

Investors should monitor several indicators to gauge Nvidia's resilience in the face of potential tariffs and geopolitical risks. These indicators include:

1. Revenue and Earnings Reports: Nvidia's revenue and earnings reports provide insights into the company's financial health and performance. For example, Nvidia reported revenue for the fourth quarter ended January 26, 2025, of $39.3 billion, up 12% from the previous quarter and up 78% from a year ago. GAAP earnings per diluted share was $0.89, up 14% from the previous quarter and up 82% from a year ago. Non-GAAP earnings per diluted share was $0.89, up 10% from the previous quarter and up 71% from a year ago. These figures indicate strong financial performance despite potential external challenges.

2. Gross Margins: Nvidia's gross margins are a key indicator of its profitability and resilience. The company's adjusted gross margin of about 75.5% as of 2024 suggests that it has a strong margin of safety against potential tariff impacts.

3. Geographical Sales Distribution: Monitoring the geographical distribution of Nvidia's sales can provide insights into its exposure to tariffs. For example, Nvidia derives just about 47% of its sales from the U.S., which limits the impact of U.S.-specific tariffs.

4. Strategic Partnerships and Investments: Nvidia's strategic partnerships and investments, such as TSMC's plans to invest $100 billion into new chip-making facilities in the United States, can help mitigate tariff risks and ensure long-term resilience.

5. Market Sentiment and Analyst Coverage: Monitoring market sentiment and analyst coverage can provide insights into investor confidence and expectations for Nvidia's stock performance. For example, Nvidia's stock has experienced significant volatility in recent years, with annual returns being considerably more volatile than the S&P 500. However, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile and has comfortably outperformed the S&P 500 over the last 4-year period.

In conclusion, while potential tariffs and geopolitical risks may cause short-term volatility in Nvidia's stock performance, the company's strong financial performance, high gross margins, and strategic investments suggest long-term resilience. Investors should monitor key indicators such as revenue and earnings reports, gross margins, geographical sales distribution, strategic partnerships, and market sentiment to gauge Nvidia's resilience in the face of potential challenges.