Nvidia's stock price has continued to pull back recently, falling below the $100 mark in pre-market trading on Monday. However, investors remain cautious about the stock amid increasing risks.
The latest blow to the chipmaker is the heavy hit to its business in China, which has led Wall Street analysts to ponder the company's growth potential. According to reports, its H20 chip exports will require a license under the US government's requirements.
Ben Reitzes, an analyst at Melius Research, stated, "You can see that the company is not banking on obtaining such a 'license' in the future," given Nvidia's announcement that it will record approximately $5.5 billion in H20 inventory-related expenses in the fiscal quarter ending in April.
This news has heightened concerns that spending on artificial intelligence by large enterprises may slow down, especially as the trade war further clouds the overall economic growth outlook.
Krishna Chintalapalli, portfolio manager and head of the technology sector at Parnassus Investments, pointed out, "Nvidia's outlook is not as compelling as it used to be. You have to consider factors like tariffs, markets, corporate spending, and macroeconomics, as all these are compounding, and uncertainty is much higher than ever before."
As of Monday, Nvidia's stock price has fallen 24% this year, roughly double the decline of the Nasdaq 100 index. Chintalapalli believes the stock is reasonably valued, even though its price-to-earnings ratio is 22 times, well below the long-term average.
Market analysts say that if investors want to buy Nvidia stock at this level, they may be betting on the massive demand for AI chips from enterprises, with giants like Microsoft, Alphabet, and Amazon allocating tens of billions of dollars to build AI infrastructure. "But given macroeconomics and tariff issues, you can't predict what's coming next."
The sharp decline in Nvidia's stock price and its significant valuation shrinkage highlight the dangers the company faces as a chipmaker: on one hand, AI spending may slow down; on the other hand, the Trump administration is attempting to reset global trade relations. If trade tensions lead to an economic recession, all forecasts for future earnings will be invalidated, undermining the rationale for its valuation.
Microsoft has announced plans to scale back data center projects, while other companies like Alphabet have maintained their capital expenditure plans for this year, but the outlook for 2026 remains uncertain.
Since the emergence of China's DeepSeek in January this year, investors have been discussing the prospects of AI spending. DeepSeek claims that its performance is comparable to US models despite lower costs and fewer required chips.
However, as tariff negotiations progress, investors are beginning to see that the demand for AI equipment makes Nvidia's trade risks lower than some of its peers. Other chipmakers, especially those targeting end-user markets like PCs, mobile phones, cars, and industrial sectors, will face indirect pressure from demand destruction.
The tariff situation is highly unstable. Recent tariff relief measures on smartphones, computers, and other electronic products seem to have alleviated stock price pressure, although Trump insists that this measure is temporary.
Last week, ASML Holding's Q1 orders fell short of expectations, and the company warned that it is unknown how to quantify the impact of tariffs, leading to a sell-off in its stock.
Daniel Flax, senior research analyst at Neuberger Berman, stated that politics will remain part of the investment environment for the foreseeable future, and the environment will continue to evolve. "This will affect many companies, including Nvidia, but I think Nvidia stock looks quite attractive over a 12- or 18-month time frame."