President Donald Trump’s move to extract a 15% sales tax from Nvidia Corp. on certain semiconductors sold in China did nothing to damp investor enthusiasm for the world’s most valuable company.
A look at balance-sheet math goes a long way to explaining why. In the first quarter, Nvidia said it sold $5.5 billion in products to China, roughly 13% of its total. The chips exposed to the Trump tax accounted for about 80% of that, or just under $5 billion.
That means the Santa Clara, California-based firm could send some $700 million per quarter to the Treasury — hardly chump change. But for a company that churns out $20 billion in profit a quarter and increases sales by a similar amount - a rate of growth it’s sustained throughout the AI boom — paying the tax barely registers.
“I don’t think it’s that big of an issue,” said Larry Tentarelli, founder of Blue Chip Daily. “If it was their overall revenue base, it would be a big problem. But because China is not the biggest proportion of their revenues, it’s a speed bump.”
Nvidia shares slipped Monday after the tax was disclosed, then rallied to a fresh record Tuesday in a broad market advance. The chipmaker’s shares have doubled since early April, pushing its market value past $4.4 trillion. Similarly, AMD, which agreed to the same tax, closed at the highest in more than a year on Wednesday, bringing year-to-date gains to 53%.
Nvidia reports second quarter earnings on Aug. 27. Analysts expect it will report earnings growth of 44% on a 53% surge in revenue to $45.9 billion.
That’s not to say the clouds have completely lifted in China. Bloomberg News reported this week that Beijing has encouraged local firms to avoid using Nvidia’s chips — a move that could limit sales.
And worries abound that chipmakers will increasingly become ensnared in federal trade policy or that China could make a more formal recommendation to ban certain US chips altogether.
“It is a hard game to know how this will play out. I would almost consider the stocks absent this news,” said Michael Matousek, head trader at U.S. Global Investors Inc. “If you already liked them, there’s potential for upside from China, but there are risks this could change again.”
None of that, though, seems to register among investors betting that red-hot demand for AI infrastructure will continue to burn. The trend has lifted shares of Nvidia from their April lows alongside Magnificent Seven peers deemed AI winners, including Meta Platforms Inc. and Microsoft Corp.
The tax news is “mostly empty calories,” Citigroup’s Christopher Danely wrote in a note this week on AMD. “We view this as not material given the low margins of these products, and these AI GPUs could be banned in China again.”
At Bernstein, analyst Stacy Rasgon worries about the precedent the Trump tax sets. The arrangement “might raise some money, but doesn’t seem to address any strategic issues beyond a grab for dollars,” he wrote in a note published Aug. 11.
Regardless, Nvidia shares will rise or fall on its ability to deliver sales of cutting-edge chips, most notably its Blackwell products.
“What’s more important is the trajectory of Blackwell and whether or not Blackwell is going to meet or exceed expectations,” said Melissa Otto of Visible Alpha LLC. “That’s what the market has priced in. That’s where we see the biggest uplift in demand and growth. And so that is ultimately what is going to drive the earnings expectations and valuation for the stock.”
That major question, along with the trade uncertainty and Nvidia’s rally do leave the shares exposed to profit-taking ahead of the Aug. 27 report.
“I’m not going to bet on whether this stays a positive,” said Alvin Nguyen, senior analyst at Forrester. “There have been so many rapid changes, there’s still so much uncertainty, and we need to see stability in trade.”
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