During the boom market of 2017-2018, TV analyst Jim Cramer took to calling one of his dogs Nvidia (NASDAQ:NVDA), after the graphics chip company whose stock just wouldn’t stop rising. Shares that sold for under $50 three years ago went for as much as $281 last October.
The shares will probably open around $162 today. Blame President Donald Trump’s latest tariffs on Chinese goods, imposed with almost no warning and with an absurd claim that China is paying them to America, when in fact they’re a tax American buyers pay.
Absent the trade war, Nvidia’s business was bottoming out. It is due to report earnings May 16, with net income of 79 cents per share on revenue of $2.2 billion expected, but now, that doesn’t matter.
What Is Lost for NVDA Stock
Nvidia’s designs make it the leader in gaming graphics. Chinese manufacturing makes the designs affordable, enabling the cloud-based artificial intelligence boom.
Chinese manufacturing expertise is essential to the process. Intel (NASDAQ:INTC) just can’t deliver the precision of Taiwan Semiconductor (NYSE:TSM). Tariffs don’t change that. China has a symbiotic relationship with U.S. technology, not a parasitic one.
Nvidia shares bottomed out from their last plunge, caused by an inventory recession, in December, at around $130. But they will head back there soon as the technical indicators on the stock have all broken down. Whether the losses come slowly or in a panicked rush is the only question.
And the whole thing is entirely unnecessary, because the business is still doing well. Red Hat (NYSE:RHT), which will soon be a unit of International Business Machines (NYSE:IBM), continues working with Nvidia on machine learning in the cloud.
Once it finishes swallowing Mellanox (NASDAQ:MLNX) for $6.9 billion, Nvidia will be able to deliver fast networking fabric to complement its chips, making it a more complete cloud hardware play.
Nvidia has a new software development kit, called Isaac, now available to make development of robots easier. Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), which was thought to be replacing Nvidia hardware with its own, is instead adding more support for it within its cloud. Nvidia’s new tablet, dubbed Shield, has the power of a desktop computer.
Business is great. People are terrific. Life is wonderful.
Then along comes Trump.
Don’t Buy Nvidia Now
When a tech stock is about to go down, analysts suddenly find excuses for it, and they’re finding excuses for Nvidia.
Besides the technical indicators, analysts are worried about the latest Advanced Micro Devices (NYSE:AMD) supercomputer, worried that its graphics cards are catching up, and noting that AMD has won the processor contract for Sony’s (NYSE:SNE) Playstation 5.
Nvidia is in a shouting match with Tesla (NASDAQ:TSLA) over self-driving car tech, there are problems with some of its software drivers, and some Mellanox shareholders are suing, claiming the price Nvidia is paying for their stock is too low. While NVDA stock looks OK long-term, there’s just a lot of noise to deal with right now.
The Bottom Line
Nvidia founder and CEO Jensen Huang illustrates why trying to split China from the U.S. is nonsense. He was born in Taiwan, in 1963, but his family emigrated to Kentucky. He has endowed an engineering center at Stanford, with his name on it. He sports leather jackets and is the embodiment of the American dream.
But argument has no place against arbitrary power. The best thing for investors to do is wait out the storm and buy when Trump finds another shiny object to hate and decides he needs the tech economy.
As I’ve said many times, trade wars are unhealthy for economies and other living things.
Dana Blankenhorn is a financial and technology journalist. He is the author of the 2018 mystery thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
