After a few months of speculation, President Donald Trump finally announced his full tariff plan on April 2, which included updated tariffs on more than 180 countries. Some tariffs were on the low end at 10%, while others skyrocketed to over 90%.
Considering how much U.S. companies rely on imports, these new tariffs will have a noticeable impact on many products and services. This is particularly true for large tech companies that rely on a global supply chain.
One company in particular that many are paying close attention to is Nvidia (NVDA +0.19%), the world's leading graphics processing unit (GPU) producer and one of the most vital companies in the developing artificial intelligence (AI) ecosystem.
Given the newly implemented tariffs, should investors be concerned about the impact it could have on Nvidia's business?
NASDAQ: NVDA
Key Data Points
What Nvidia imports will be subject to new tariffs?
Nvidia is based in California, but it relies on international companies to piece together its operations. The company designs its chips in California, but it doesn't actually make its own chips. Instead, it presents these designs to Taiwan Semiconductor Manufacturing Company (TSM 1.15%) (which it relies on the most) and Samsung, which build them.
The bad news for Nvidia is that there is now a 32% and 34% reciprocal tariff on imports from Taiwan and China, respectively, and they're two of the countries Nvidia relies on the most. The more encouraging news is that semiconductors, which Nvidia relies on for its GPUs and AI chips, were mostly exempt from Trump's new tariff plan.
However, Nvidia still relies on aluminum and steel for things like its data center hardware, and those are not exempt. The tariffs on those are 25%, meaning an item that might've cost Nvidia $1,000 previously will now cost it $1,250.
How can the tariffs affect Nvidia's financials?
Nvidia's revenue and net income have grown impressively in the past three years, thanks to the increased demand for its GPUs and AI chips.
NVDA Revenue (Annual) data by YCharts.
That said, you can expect your financials to take a hit anytime you have to spend more to make the same products. In the short term, it's fair to assume that Nvidia's earnings will drop, and margins could slim down as near term tariff-driven expenses rise. This doesn't mean earnings will reverse course from its current momentum; it just won't be as explosive as it has been over the past few years.
Nvidia could, of course, pass these higher costs on to its customers, but that runs the risk of pushing away some customers who are becoming more price-conscious, thanks partly to increased recession fears. That could end up hurting Nvidia more in the longer run.
So, should Nvidia investors be worried?
These new tariffs aren't ideal for Nvidia's business, but it's one of the more financially prepared companies for this time, with over $43 billion in cash and short-term investments. That gives it a sizable amount of cash and flexibility to weather the current conditions and decide what makes sense for its business in the immediate future.
NVDA Cash and Short Term Investments (Annual) data by YCharts.
If you're an Nvidia investor eyeing retirement soon and need to lock in gains or cut losses, by all means, do so. However, if time is on your side, these events shouldn't cause you to jump ship on the company completely.
Nvidia's most important partner, Taiwan Semiconductor Manufacturing, has plans to ramp up U.S. operations, potentially reducing tariff impact over the longer term. And expected AI growth should help offset the more immediate financial impact.
If you're concerned about Nvidia's stock in the near term but believe in its long-term potential, I'd suggest using this time to dollar-cost average. Nobody -- and I do mean nobody -- can predict how the stock (or stock market in general) will behave in the short term, so dollar-cost averaging can help offset some of the effects of volatility.
What you don't want to do is try to time the market and end up doing yourself more harm than good. Nvidia is still a great company with good long-term potential. Understand this is just a hiccup and stay the course.
