Trump’s Tariff Pause Gave Nvidia a Lift—But Will It Last?

Nvidia’s meteoric rise over the past few years has become a case study in how a tech company can capitalise on multiple macro trends—AI, gaming, data centres, and high-performance computing. But in early April 2024, the chipmaker received an unexpected tailwind from geopolitics. Specifically, the Biden administration announced a pause on specific tariffs targeting semiconductor equipment sales to China, a move widely interpreted as a reversal or softening of former President Trump’s harsher tariff regime. Investors responded almost instantly. Nvidia’s share price surged on the day of the announcement as markets interpreted the pause as a sign of easing trade tensions.

But the question remains: Will this momentum last, or is the rally merely a short-lived boost? Let’s unpack what’s happening here and what it might mean for Nvidia’s long-term trajectory.

 

Why the Tariff Pause Matters for Nvidia

At its core, Nvidia is a chip designer, but its global footprint, particularly in China, makes it highly vulnerable to shifts in trade policy. China accounts for a significant portion of Nvidia’s data centre and AI chip revenue, and export restrictions introduced by the U.S. Commerce Department in late 2022 had already begun to affect sales.

When the Office of the U.S. Trade Representative (USTR) confirmed that certain tariffs on chipmaking equipment and GPUs would be postponed or exempted, the relief was palpable across the semiconductor sector. Nvidia jumped by over 4% intraday following the news, as reported by CNBC on April 9, 2024. While the company wasn’t directly named in the tariff exemptions, the implications were clear: a less hostile trade environment would ease supply chain bottlenecks and reduce compliance risks.

 

But We’re Not Talking Stability—We’re Talking Uncertainty

Despite the initial euphoria, there’s a more cautious undertone here. The pause on tariffs is just that, a pause. It doesn’t signal the end of U.S.-China tech tensions. The timing is politically loaded. With the U.S. presidential election approaching, the Biden administration may be strategically softening its stance to avoid upsetting markets or alienating allies before voters head to the polls.

What does that mean for Nvidia? In simple terms: continued volatility. The chipmaker may benefit from short-term export freedom, but the regulatory risks remain. The spectre of further bans, especially on high-performance GPUs used in AI applications, hasn’t gone away. U.S. officials are still pressuring allies like the Netherlands and Japan to restrict the sale of advanced lithography tools to China, as reported by Bloomberg.

 

China Still Matters—A Lot

Let’s not forget that Nvidia’s presence in China is strategically crucial. While the U.S. remains its largest market, China is a growth engine that Nvidia cannot afford to lose. According to its FY2024 annual report, Nvidia derived approximately 13% of its total revenue from China, even after recent export restrictions. That number would have been higher had the 2023 curbs not been introduced.

In response, Nvidia developed slower versions of its AI chips (such as the A800 and H800) specifically to comply with U.S. export controls while still serving Chinese clients. However, as reported by the Wall Street Journal, those products are now also under review, with Washington considering whether to close that loophole.

So, does the tariff pause change the fundamental outlook? Not entirely. We believe it buys Nvidia some time, perhaps a quarter or two, to maximise sales to China while the regulatory climate is in flux. But it doesn’t solve the deeper geopolitical rift that’s disrupting the global chip supply chain.

 

A Broader AI Boom Cushions the Impact

If Nvidia were reliant solely on China, we’d be much more cautious. But in our view, the company’s diversification into AI, automotive chips, and cloud data centres makes it resilient to these policy shocks. The broader AI boom continues to underpin its valuation.

In its Q4 FY2024 earnings report, Nvidia posted a record revenue of US$22.1 billion, a 265% year-on-year increase, driven by surging demand for its H100 AI GPUs. Much of that demand is coming from hyperscalers like Microsoft Azure, Amazon Web Services, and Google Cloud, none of which are directly impacted by China tariffs.

What are we seeing here? In our view, it’s a tale of two narratives: geopolitics vs. fundamentals. And so far, fundamentals are winning.

 

Investor Sentiment: Still Bullish, But Wary

From an investor perspective, sentiment around Nvidia remains bullish but with growing caution. The share price has climbed over 70% year-to-date as of mid-April 2024, making it one of the best-performing mega-cap stocks globally. Analysts from Morgan Stanley and Goldman Sachs continue to rate the stock as a ‘Buy, ’citing robust AI tailwinds.

But even the most optimistic forecasts now come with caveats. We’re seeing repeated mentions of “China risk” in broker notes and earnings calls. And rightly so—this is not a market risk to ignore. As geopolitical tensions rise, Nvidia’s ability to operate freely across borders is no longer guaranteed.

 

Could the Tariff Pause Backfire?

One theory gaining traction among policy analysts is that the pause on tariffs might invite more scrutiny later on. If Nvidia or its peers use this window to ramp up exports to China, it could prompt regulators to respond with even stricter controls in the next round of trade negotiations.

We’ve already seen this playbook in action. When Huawei found ways around chip bans via third-party suppliers, U.S. officials doubled down with harsher restrictions. Could Nvidia face the same fate? It’s possible, especially if Chinese firms begin using its AI chips in military or surveillance projects, a concern frequently cited by U.S. lawmakers.

 

Where Do We Go From Here?

In our view, Nvidia’s short-term outlook looks promising, buoyed by AI demand and investor optimism. But the medium- to long-term picture is cloudier. Much hinges on the outcome of the 2024 U.S. election, the direction of U.S.-China relations, and whether other jurisdictions follow Washington’s lead in tightening chip exports.

Investors should also keep an eye on Nvidia’s next product cycle. The upcoming Blackwell GPU architecture, set to launch in late 2024, could be a game-changer, but only if it avoids becoming a pawn in the ongoing tech war.

 

Final Takeaway

The tariff pause has indeed given Nvidia a lift, but we’re not talking about a fundamental turning point. We’re talking about a reprieve. Nvidia remains one of the most exciting tech plays of this decade, but it also sits at the heart of a geopolitical storm.

For now, the smart money is staying in. But the exit doors are marked.

In the broader scheme, this episode serves as a reminder that tech stocks, even the darlings of Wall Street like Nvidia, are increasingly subject to the whims of international politics. Investors can no longer view these companies purely through the lens of innovation or earnings; geopolitical resilience is now a critical part of the valuation puzzle. While Nvidia’s fundamentals remain robust and its strategic pivot to AI continues to deliver, we believe cautious optimism is warranted. Keep an eye on regulation, election outcomes, and supply chain strategies. Because in today’s market, even the most promising rally can be derailed by a headline.

 

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