Nvidia (NASDAQ:NVDA) stock peaked at over $153 in January and looked like it could do no wrong. But in the fallout from President Trump’s tariff war, it’s slumped more than 30% to $105 as I write on 17 April.
It was even lower in the immediate aftermath of the president’s so-called ‘Liberation day’ announcement, slumping to under $87 for a 43% fall.
We’re now looking at the world’s leading artificial intelligence (AI) chip maker on a forward price-to-earnings (P/E) of just 26 (dropping to 20 by 2027). That’s at a time when Tesla, which has crashed nearly 50% from its peak, still commands a multiple of over 100.
Fill our boots?
Did I call Nvidia the world’s leading AI chip maker? That might be an understatement. Demand for Nvidia chips is currently well ahead of its nearest rivals, Advanced Micro Devices and Intel.
When a leader in a field falls so heavily for reasons not due to the company’s performance, I’d usually see it as a great time to consider buying.
Short-term political moves don’t do much harm to the long-term outlook for the really great companies, right? Well, in this case, I fear the president’s plans might actually do just that.
And it’s not just because of the $5.5bn hit that Nvidia has predicted for the current quarter.
Tech restrictions
Nvidia was already prevented from exporting its current Blackwell chips to China, apparently seen by the White House as America’s biggest threat. Chinese AI development has still been going impressively well even with older-generation H20 chips and demand for those has remained strong.
But the US Commerce Department has announced plans for new controls on the export of those H20 chips too. And on AMD’s MI308 processors, as well as similar chips from other developers.
At the moment the USA is the world’s largest investor in AI development. But China is coming up. And it’s starting to look like it could get more bang for its buck with the money it invests.
The lead evaporates?
What will closing Nvidia off from what might soon count for half the world’s AI spend do to its prospects? Nvidia currently has a significant technological lead. But in this business, being held back for just a few years could do serious harm to any first-mover advantage.
China isn’t sitting on its hands. In March we had reports of Chinese scientists developing the world’s first AI chip using carbon nanotubes. Apparently it uses some kind of ternary logic rather than binary. Never mind just zeros and ones, this thing goes up to two.
The only reasonable confidence I have in where AI tech development is going is that it could be very different in 10 years’ time. And Nvidia’s lead might be challenged.
Valuation
I’m deliberately taking a very bearish stance here. But it can pay to think about the worst that might happen before we buy into a falling stock.
Even with the dangers, I still rate Nvidia’ stock valuation as very low. And I definitely see it as still a very tempting one to consider. I just think the risk has risen significantly.
