BCA Research's Marko Papic: Reevaluating OBBBA Approach Amid Geopolitical Risks

Marko Papic, BCA Research's macro and geopolitical strategist, suggests that geopolitical risks can contribute to growth, productivity, and asset returns. He argues that historical data supports this claim, and markets should reconsider their approach to mitigating these risks. Papic also references the OBBBA approach, which may be deemed illegal if tariffs are considered illicit.

Title: Navigating Geopolitical Risks: Nvidia's AI Dominance and the OBBBA Impact

Nvidia's Q2 2025 earnings report has sparked significant optimism among analysts, with revenue surging to $46.7 billion, driven by an 88% increase in data center growth via its Blackwell AI platform. This growth secured Nvidia an 80% global AI accelerator market share. Analysts have raised price targets to $215–$230, citing robust demand for Blackwell and H20 chips, China's $108 billion AI market potential, and the upcoming Vera-Rubin chip (2026) for 50% annual growth [1].

However, geopolitical risks persist. U.S. export controls have cost Nvidia $2.5 billion in lost sales, with the 15% remittance on H20 chip sales further complicating its strategy. Regulatory volatility and China's domestic AI chips (e.g., Huawei) threaten long-term access, though Nvidia's CUDA ecosystem and U.S. policy alignment offer a competitive moat [1].

The OBBBA, enacted on July 4, 2025, has introduced significant changes to U.S. international tax rules. The legislation rebrands GILTI as Net CFC Tested Income, reducing the Section 250 deduction from 50% to 40% and repealing the net deemed tangible income return. The effective U.S. tax rate increases to 12.6%. The FDII is rebranded as Foreign-Derived Deduction Eligible Income, with the Section 250 deduction dropping from 37.5% to 33.34%. The BEAT rate increases slightly to 10.5%, and FTC reforms improve credit recovery and reduce residual U.S. tax on foreign earnings [2].

Marko Papic, BCA Research's macro and geopolitical strategist, suggests that geopolitical risks can contribute to growth, productivity, and asset returns. He argues that historical data supports this claim, and markets should reconsider their approach to mitigating these risks. Papic also references the OBBBA approach, which may be deemed illegal if tariffs are considered illicit [3].

Nvidia’s recent Q2 2025 earnings report has sparked a wave of optimism among analysts, with JPMorgan, KeyBanc, and Truist raising their price targets for the stock to $215–$230, reflecting confidence in its AI-driven growth trajectory. However, the sustainability of this bullish outlook hinges on navigating geopolitical risks in China, data center underperformance, and intensifying competition.

Despite these strengths, China remains a critical wildcard. U.S. export controls have cost Nvidia $2.5 billion in lost sales, with the 15% remittance on H20 chip sales further complicating its strategy. Q2 2026 data center revenue missed estimates, partly due to delayed China sales and regulatory delays. Competitors like AMD (MI300X/MI450) and Intel (Gaudi 3) are closing the gap, while cloud providers such as AWS and Microsoft are diversifying their hardware portfolios [1].

Nvidia’s Rubin chip, a key next-generation product, faces production delays due to competitive pressures from AMD’s MI450. Originally slated for late 2025 mass production, Rubin’s redesign has pushed shipments to 2026, potentially limiting its near-term impact [1].

The average analyst price target of $202.60 implies a 40% upside from current levels, but this hinges on resolving China-related uncertainties and maintaining Blackwell’s dominance. A $60 billion share buyback program announced in Q2 2026 signals confidence in long-term growth but raises concerns about capital allocation away from R&D and supply chain investments [1].

Regulatory volatility remains a key risk. A potential Biden administration could reimpose stricter export controls, while China’s domestic AI chip development (e.g., DeepSeek, Huawei) threatens long-term market access. However, Nvidia’s CUDA ecosystem and strategic alignment with U.S. industrial policy provide a moat against these threats [1].

Conclusion: A Bullish Case with Caution

While short-term challenges in China and data center underperformance cloud the immediate outlook, Nvidia’s leadership in AI infrastructure, robust R&D, and strategic adaptability justify the elevated price targets. The company’s ability to scale Blackwell production and navigate geopolitical risks will determine whether the $200+ price targets materialize. Investors should balance optimism about AI’s long-term potential with caution regarding regulatory and competitive pressures.

Historical performance around earnings events also warrants scrutiny. A backtest of NVDA’s stock behavior following earnings releases from 2022 to 2025 reveals a pattern of underperformance: over a 30-day window post-earnings, the stock has averaged a -14% cumulative return relative to the benchmark, with a declining win rate from 60% in the first week to 20% by Day +30 [1].

References

[1] https://www.ainvest.com/news/nvidia-ai-dominance-price-target-hike-q2-earnings-assessing-sustainability-growth-geopolitical-data-center-challenges-2509/
[2] https://tax.thomsonreuters.com/blog/how-multinationals-can-stay-ahead-of-obbba-and-pillar-2/
[3] https://www.bcaresearch.com/analysis/marko-papic-geopolitical-risks-and-global-economy