We saw the technology sector took a further hit yesterday (16 April) after the Nasdaq-100 index (NDX) plunged 4.1%. This is catalysed by the downturn in semiconductor stocks and Powell's hawkish comments.
$NVIDIA(NVDA)$ is facing significant challenges as it requires an indefinite license to export its H20 GPUs to China, essentially blocking sales due to ongoing trade tensions. Nvidia's disclosure regarding the need for special licenses to export its GPUs to China contributed to the negative sentiment, causing the $Philadelphia Semiconductor Index(SOX)$ to drop by 6.9%.
This move is seen as a strategic measure by the U.S. government in the trade war with China. As of yesterday’s close, Nvidia had dropped 6.87%, as analysts suggest this is just the beginning of a prolonged negotiation process between the two nations.
This has also affected $Advanced Micro Devices(AMD)$ as the U.S. government imposed new export licensing requirements on their AI chips, part of a broader strategy to curb China's AI ambitions.
In this article, I would like to explore how a prolonged negotiation of the trade war potentially could make Nvidia vulnerable.
A prolonged trade war between the US and China, particularly involving restrictions on technology exports, poses significant risks to Nvidia's stock price in several ways:
Direct Revenue Loss from Export Restrictions
The US government has implemented escalating controls limiting the sale of advanced AI chips (like Nvidia's high-performance GPUs) to China, citing national security concerns.
China has historically been a significant market for Nvidia, accounting for roughly 20-25% of its data center revenue before major restrictions took effect. This share had already fallen substantially due to earlier controls.
Recent Impact (April 2025): The US government imposed new license requirements on Nvidia's H20 chip, specifically designed to comply with previous restrictions for the Chinese market. Nvidia announced this will result in charges of up to $5.5 billion in Q1 FY2026 (ending April 27, 2025) due to inventory and purchase commitments it likely can no longer sell into China. This indicates a near-total block on current AI chip sales to this major market.
This loss of revenue directly impacts Nvidia's top and bottom lines, potentially leading analysts to lower earnings forecasts.
NVIDIA's outlook for the first quarter of fiscal 2026 is as follows: Revenue is expected to be $43.0 billion, plus or minus 2%. GAAP and non-GAAP gross margins are expected to be 70.6% and 71.0%, respectively, plus or minus 50 basis points.
I believe there will be downside adjustment for the revenue and the GAAP and non-GAAP gross margins might likely be below 50%.
Reduced Future Growth Potential: Blocking access to the large and growing Chinese market limits Nvidia's overall addressable market and future growth prospects, which can negatively impact investor expectations and stock valuation.
Increased Operating Costs and Uncertainty
Nvidia has had to spend resources designing specific, lower-performance chips (like the now-restricted H20) just for the Chinese market to comply with regulations.
The constantly shifting nature of these restrictions creates uncertainty and makes long-term planning difficult, potentially increasing operational risks and costs.
Investor Sentiment and Stock Volatility
Geopolitical tensions and trade restrictions create uncertainty, which investors generally dislike. News of new restrictions or escalating tensions often leads to sell-offs in Nvidia's stock, as seen by the approximate 7% drop following the H20 restriction news in April 2025.
Analysts have described Nvidia as "very vulnerable" to the geopolitical consequences of the US-China trade war, which can weigh on sentiment.
Fostering Competition
US restrictions limiting Nvidia's access incentivizes China to accelerate its development of domestic AI chip alternatives (e.g., from companies like Huawei). While currently lagging, successful development of competitive domestic chips in China could erode Nvidia's potential future market share if restrictions ease, and could eventually lead to global competitors.
This would further affect Nvidia Data Center revenue growth which it had been leading significantly, and with the successful development of competitive domestic chips in China, more market share could be taken from Nvidia, AMD and Intel.
But Nvidia would be most affected as that is the main revenue contributor, question is how long can Nvidia withstand the prolonged negotiation between U.S. and China.
Nvidia Price Target Moving Forward
As of now, analysts have yet to adjust the price target for Nvidia and expect an upward move, but if we looked at the trend for prolonger negotiation, there is a possibility that Nvidia might trade close to $90 as it has hit that level before during the selloff.
So over the next few weeks, I think as investors we should be watching how Nvidia demand for its chips from other regions performed, because the restriction have not yet fully in effective.
I would be monitoring Nvidia stock price as I have a position and have taken a DCA when it reached 95 recently, so I might do more if the situation permits.
Summary
Prolonged trade tensions directly cut off a significant revenue stream, introduce significant operational uncertainty, negatively impact investor sentiment leading to stock price volatility, and potentially accelerate the rise of long-term competitors in China.
Nvidia recent $5.5 billion charge highlights the tangible and substantial financial suffering these restrictions can cause.
For the long term, Nvidia chips are still in demand by other part of the world, but if the prolonged trade tensions create an opportunity for stronger competitors to catch up, then Nvidia would be vulnerable.
Appreciate if you could share your thoughts in the comment section whether you think Nvidia would be vulnerable if the prolonged trade tensions allowed stronger competitors to catch up with Nvidia rise.
@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.
Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.
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