Predicted Victory: Nvidia Surpasses Tariffs, Fueling Skyrocketing Stock

It appeared that everything was going well for him. Nvidia (NASDAQ: NVDA) Last year, the chip designer experienced massive demand for their new Blackwell architecture, leading to record-breaking revenue and profits — causing investors to rush into purchasing the stock. Dow Jones Industrial Average (DJINDICES: ^DJI) Even extended an invitation to Nvidia to join, and this newest addition achieved the highest performance in the yearly index, increasing by over 170%.

However, this year has proven significantly tougher for the AI industry leader. President Donald Trump introduced an extensive proposal to impose taxes on goods coming from various nations globally. This policy shift leads to increased expenses for businesses importing raw materials and products. Nvidia falls into this category since it manufactures 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.

Nevertheless, Nvidia has garnered significant attention due to its robust financial performance recently, with this earning model relying on overseas manufacturing. While tariffs certainly pose a challenge for Nvidia and similar companies, I anticipate that Nvidia will navigate through the tariff issues successfully, leading to an impressive surge in its stock value.

1. Nvidia has an edge over others.

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 lately, some of its production has been shifted to TSMC’s facility in Arizona. TSMC supports this transition to U.S.-based manufacturing and has recently boosted its investment in American-based factories to $165 billion. This move is expected to aid Nvidia’s expansion in production 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 leading to the complete manufacturing of its AI supercomputers within the United States.

The firm plans to produce up to $500 billion worth of AI infrastructure via domestic collaborations over the next four years. These operations will occur at TSMC’s current facility in Arizona, alongside Nvidia constructing two sites in Texas with partners. Foxconn And Wistron. The expectation is for production to increase at these facilities within 12 to 15 months.

This won't protect Nvidia from potential tariffs This change might come into play soon, yet it ought to calm investor concerns that tariffs would have a prolonged negative impact on profits.

2. The tariffs might not be harsh.

Initially, Trump introduced tariffs covering all imported goods but later excluded electronics from this list. This exclusion allowed his administration to set distinct tariff levels specifically for the electronics sector. Currently, items like smartphones and semiconductors remain duty-free. Following an outcry from businesses and experts who voiced their concerns via social media and press releases regarding the detrimental impact of the original proposal on the industry, the President decided to make these exceptions.

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 themselves discontent with the government's proposal.

My prediction

Let’s return to my forecast. The factors mentioned previously lead me to believe that Nvidia will overcome the challenges posed by tariffs. What this means is that these duties aren’t likely to substantially impede their earnings growth in the long run. We should remember that currently, Nvidia exhibits robust profit margins relative to their revenue. gross margin more than 70%, and probably can adjust in different aspects to absorb increased expenses in the short term.

Although we might observe a reduction in profit margins, I do not anticipate this drop to be significant or enduring. 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.

I wouldn't be shocked if Nvidia's stock value rises as everything comes together.

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Adria Cimino does not hold any shares in the companies listed above. However, The Motley Fool holds stakes in and endorses Nvidia and Taiwan Semiconductor Manufacturing. Additionally, The Motley Fool discloses that they have a disclosure policy .

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