Nvidia (NASDAQ:NVDA) still holds the title of the top graphics processing unit chipmaker in the world. The trouble is, China is a major factor in NVDA’s market strategy — it accounts for around 25% of its revenue. And we don’t know what is going on with China due to the current trade war and the threat that it’s going to get worse before it gets better. But is there a light at the end of the tunnel nearby for Nvidia stock?
Now, we’ve been down this road before. President Donald Trump has signaled that he will extend tariffs on another $300 billion in goods from China on Sept. 1 if China doesn’t show some serious interest in coming back to the negotiating table. This is what the big selloff was about. The market needed to revalue everything in the event that China holds its ground. And from every indication, China isn’t too interested in making concessions.
This is a risky game both leaders are playing, especially for Trump since there’s a big election coming up next year. Bad blood between the two top economies in the world isn’t going to be a great message to sell voters.
The Chinese, on the other hand, can afford to wait. They will manage their short-term pain and look for a better deal either from a re-elected Trump or a new president. Plus, they’ve made it more difficult for U.S. companies that operate in China.
At the same time, China is expanding its Shanghai Free-Trade Zone to attract tech companies. Tesla (NASDAQ:TSLA) is already there, along with a number of other large U.S. firms. And JPMorgan Chase (NYSE:JPM) was just given control of what is now the first foreign-owned Chinese asset management firm.
The point is, China is taking with one hand, and giving with the other. Another example of this is soybeans. The U.S. was China’s top soybean supplier until the trade war began. Then, China cut off U.S. soybeans. But aside from stockpiles, there didn’t seem to be a viable solution to the country’s lack of supply. Now, China has begun producing soybeans on land in eastern Russia, after the two countries cut a deal for China to lease the land and provide the farmers.
When it comes right down to it, soybeans and GPUs are not that different in the world of trade. Although, given China’s poor relations with Taiwan and the U.S. crackdown on production facilities moving import and export operations to other Asian countries to avoid sanctions, there’s less wiggle room on the GPU side.
Bottom Line on NVDA Stock
While NVDA stock is up 13% year-to-date, it’s off about 40% in the past year. However, I’m not concerned about the near-term action, as I view Nvidia stock as a great long-term play. The reality is that the company has incredible long-term potential given that it is a leader in artificial intelligence — and it could lead to substantial gains down the road.
While the stock does earn a D rating in Portfolio Grader right now, I wouldn’t be quick to sell it just yet. Yes, the past few months have been pretty volatile for the stock, but I think that’s a great opportunity to buy Nvidia at bargain prices. I expect its upcoming second-quarter earnings report, due out on Aug. 15, will get this stock to stabilize and meander higher.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.