Nvidia's Sales Could Drop 30% Due to US-China Trade War

Nvidia's sales could drop 30% due to a trade war between the US and China. The company's end markets are growing, but up to 30% of its revenues could be at risk. Nvidia may be forced to take a $5.5 billion charge related to H20 chips intended for sale in China, with China accounting for 14% of Nvidia's sales last quarter. However, the true contribution of China to Nvidia's revenue streams could be as high as 30%.

Nvidia (NVDA) has faced significant challenges in 2025, with its stock falling by more than 30% since the start of the year, resulting in a loss of over $1 trillion in market value. Despite the company's end markets, particularly data center revenue tied to artificial intelligence (AI), growing, up to 30% of its revenues could be at risk due to the ongoing trade war between the U.S. and China [1].

The primary concern is the potential $5.5 billion charge Nvidia may need to take related to H20 chips intended for sale in China. New rules could require the firm to obtain licenses to export these AI chips, addressing the risk that they may be used in or diverted to a supercomputer in China [1]. This could significantly impact Nvidia's sales, as China accounted for approximately 14% of its sales last quarter. However, the true contribution of China to Nvidia's revenue streams could be as high as 30%, given that many shipments to Singapore, which accounts for 18% of Nvidia's sales, are actually destined for China [1].

Investors should also consider that Nvidia's stock is now priced at 18.4 times trailing sales and 11.7 times forward sales, down from a 30 times sales valuation at the start of 2025. This suggests that the threat to its Chinese sales base may have already been priced in, but losing China as a customer would still be a long-term blow to Nvidia's growth prospects [1].

However, there is some positive news for Nvidia. A surprising announcement from the White House indicated that tariffs levied against China may be substantially decreased, which could benefit chip stocks like Nvidia [2]. Additionally, Nvidia has received significant orders from Chinese companies, including Alibaba, Tencent Holdings, and ByteDance, who have been stockpiling H20 AI chips in anticipation of potential supply disruptions [2].

In conclusion, while Nvidia faces significant headwinds from the trade war and potential license requirements, it also has the opportunity to benefit from a potential easing of tariffs and strong demand for its AI chips. Investors should closely monitor these developments to understand the potential impact on Nvidia's sales and growth prospects.

References:
[1] https://www.fool.com/investing/2025/04/25/nvidia-sales-drop-trade-war-china-nvda/
[2] https://www.thestreet.com/technology/nvidia-could-see-an-unexpected-benefit-from-the-trade-war