The Trump administration is moving forward with tariffs as part of its trade policy, despite significant developments since the initial announcement on April 2. This has led to one of the most volatile weeks in recent memory in the stock market. Investors are closely watching how the situation unfolds.
According to research by The Motley Fool, an analysis by The Budget Lab at Yale found that incremental tariffs on Canada, Mexico, and China would increase prices on electronics and other sectors heavily dependent on global value chains. Nvidia (NVDA 3.56%) is a leading artificial intelligence (AI) stock due to its dominant position in accelerator GPU chips used for training and operating AI models in data centers.
The Trump administration’s tariff policies could potentially impede Nvidia’s growth. However, Nvidia’s CEO, Jensen Huang, downplayed the short-term impact of tariffs on the company in mid-March. Nvidia recently announced the commencement of production and testing of its flagship AI chip, Blackwell, in the U.S. and plans to ramp up production over the next 12 to 15 months.
While the tariffs themselves may not directly affect Nvidia, they are a symptom of broader trade tensions between the U.S. and other countries. Tensions between the U.S. and China have escalated recently. Nvidia disclosed a $5.5 billion charge for the first quarter due to government restrictions on selling H20 GPU chips to China. The company had designed the H20 GPU to comply with existing export restrictions, illustrating how quickly export controls can change.
Cloud computing is crucial for Nvidia’s growth, as AI runs on the cloud. Major U.S. technology companies have invested heavily in Nvidia’s chips to build computing capacity, train more advanced AI models, and increase their capacity to meet demand. Estimates suggest that four companies alone — Microsoft, Meta Platforms, Alphabet, and Amazon — could spend over $300 billion on AI data centers and infrastructure this year. However, it’s unclear how tariffs might impact these plans.
If cloud usage slows amid economic uncertainty, these companies could pull back on their AI investments, especially if capacity constraints ease. Microsoft has begun delaying or suspending multiple data center projects. Despite these short-term challenges, Nvidia’s long-term opportunities should outlast them. The AI industry is still in its early stages, and over the coming years, there will be more advanced AI models, broader adoption driving significantly more AI usage, and new applications and industries created by AI. All these factors will catalyze increased chip demand.
Deloitte estimated the semiconductor industry at $627 billion last year and projects it to reach $1 trillion by 2030. Logically, AI will drive much of that growth. As long as Nvidia remains the authority on AI chips, the company should continue growing, regardless of tariffs. The recent drop in Nvidia’s stock, about 25% from its high, presents a buying opportunity. The stock’s price-to-earnings ratio is 38, and analysts estimate Nvidia will grow earnings by an average of 37% annually over the next three to five years. At a price/earnings-to-growth (PEG) ratio of about 1.0, the stock is a bargain today.
Even if Nvidia grows earnings more slowly than expected, the stock remains a solid value if earnings growth is as low as 19% annually over the next five years, resulting in a PEG ratio of 2.0 today. As long as AI remains on its long-term trajectory and Nvidia plays a leading role, the stock offers a very favorable risk-reward proposition to long-term investors today. The tariffs are likely more noise than substance in this case.
