Is Nvidia Strong Enough To Overcome US-China Trade Tensions?

Semiconductor giant Nvidia NVDA appears to have once again become a pawn in the trade tensions between China and the United States as Chinese regulators accused the tech firm of breaching its anti-monopoly laws. 

China’s State Administration for Market Regulation suggested that a preliminary probe found that Nvidia had failed to meet conditions tied to its 2020 purchase of Mellanox Technologies, with further investigations set to take place. 

The news emerged after the Trump administration expanded its restricted trade list by adding 23 Chinese firms. 

Although Nvidia denied any wrongdoing, its stock slipped 1.5% in the wake of the accusations as investors once again bemoaned the uncertain outlook surrounding trade between the two superpowers, interrupting the growth of one of Wall Street’s most impressive stocks in recent years. 

Nvidia’s strong performance amidst the ongoing AI boom throughout markets saw the stock rally to become the world’s first $4 trillion company. But its presence in China has sometimes prompted investor concern as trade negotiations continue between the major Asian market and the United States. 

Concerns Over China Remain

Prior to Nvidia’s Q2 earnings report, analysts had adopted a cautious tone for the stock, with William Blair analyst Sebastien Naji adding a price target of $205 for NVDA alongside an “Outperform” rating, while also expecting zero revenue from China for the quarter. 

One key challenge Nvidia has faced when dealing with China has been growing suspicions over its chips. In July, the Cyberspace Administration of China had asked Nvidia to explain if its H20 chips could be tracked or shut down remotely, which CEO Jensen Huang confirmed they were incapable of. 

According to The Information, Nvidia had reportedly ordered component makers of the chip to stop production as a result of China’s scrutiny.

Susquehanna analyst Christopher Rolland recently raised his price target for Nvidia to $210, up from $180, while maintaining a positive rating. However, the analyst was also wary of the tech giant’s revenue from its H20 chips in China. 

Nvidia’s Fourth-Largest Market

Last fiscal year, Nvidia made $17.1 billion in revenue from selling to China, with the Asian nation’s economy representing the company’s fourth-largest market. As a percentage, 13% of the tech firm’s total sales for the year came from China, and this share appears to be waning in the most recent quarter, even though the company’s total sales continue to grow. 

As the world’s second-largest economy and with a GDP that’s projected to reach $25 trillion this year, China has been recognized by businesses across many different sectors as a major market opportunity. 

With a strong domestic supply chain buoyed by strong manufacturing, an increasing number of foreign companies are registering in China, but Nvidia’s ongoing regulatory challenges illustrate the difficulties associated with the trading superpower at a time when tensions with the United States are rising. 

As a $4 trillion company, investors will be expecting Nvidia to continue to demonstrate strength in Southeast Asian markets, which means that the company must be seen to be strengthening in China despite tightening regulatory scrutiny. 

Nvidia Stays Focused on Growth

Despite Nvidia’s difficulties with Chinese regulators, CEO Jensen Huang appears to be maximizing the firm’s growth potential in other markets. 

Huang is expected to join President Trump on a state visit to the United Kingdom in the coming days, having recently praised the nation for its ‘Goldilocks’ moment in embracing the artificial intelligence boom. 

September also saw Nvidia agree to a $6.3 billion initial order with data center operator CoreWeave, which would guarantee that the chipmaker will purchase any cloud capacity not sold to customers. 

Given that Nvidia’s stock has now rallied more than 1,000% since the beginning of 2023, it’s clear that the company’s strong position in powering the ongoing AI market rally is backed by a set of strong fundamentals and a proactive approach towards growth spending. 

With trade negotiations between the United States and China now subject to a further 90-day window, a positive outcome regarding tariffs for the two superpowers could directly benefit NVDA at a time when vulnerabilities in Asia may begin to show on the company’s balance sheets. 

Is Nvidia Still a Buy? 

While Nvidia’s short-term access to Chinese markets may cause volatility for the stock, the semiconductor giant’s firm position as a market leader in powering the artificial intelligence boom means that investors can be confident that the stock remains in a strong place in terms of futureproofing. 

The outcome of the United States’ trade negotiations with China is likely to have an immediate impact on the stock, but looking further afield, it’s unlikely that the stock will be upended by Chinese regulatory scrutiny.

Disclosure: On the date of publication, Dmytro Spilka did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer. Dmytro Spilka does not intend to make a trade in any of the securities mentioned above in the next 72 hours.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.