Stocks across industries have plummeted in recent days on concerns that President Donald Trump's tariffs on imports will eat into their profits. The U.S. just launched a plan to impose duties on most imports from around the world, with tariff levels differing from country to country.
However, the stocks that have been hit most heavily by the news are those in the technology industry. That's because these companies' cost models involve importing parts and even finished goods from abroad, and levies on these imports will add to their expenses.
As a result, some of last year's stock market stars have found themselves on many investors' "sell" lists instead of on "buy" lists. A perfect example is Nvidia (NVDA +0.29%), a company that, just a few months ago, investors dreamed of buying for a bargain price.
Nvidia has built a dominant position in one of the highest-growth markets -- artificial intelligence (AI) -- and turned that into explosive revenue growth. Due to the turnaround in market sentiment regarding tech players today, Nvidia has reached those bargain levels of investors' dreams.
Is now the time to buy the dip on this top AI stock?
Image source: Getty Images.
Nvidia's record revenue
First, here's a quick note on Nvidia's path so far. The company sells the world's most powerful graphics processing units (GPUs), or chips that power key AI tasks, plus a wide range of AI products and services. Nvidia also has a solid business selling chips to the gaming industry. All of this has helped the tech giant grow revenue in the double and triple digits to record levels -- it reached $130 billion in the latest full year.
What has drawn investors to Nvidia is its No. 1 position in the AI chip market and evidence that the AI market boom has much further to go. For example, tech leaders still are in the infrastructure growth stages and are pouring billions of dollars into AI. Meta Platforms said it will spend as much as $65 billion this year, and the overall AI market is set to soar past $1 trillion later this decade, according to analyst forecasts.
Now I'll consider the news that's been weighing on Nvidia (and the entire tech industry). As mentioned, Trump has imposed import tariffs on countries worldwide.
This could be a negative for those countries as it may discourage U.S companies from importing goods and, instead, develop their products at home. But in the case of tech, their cost structures depend on production in certain countries that offer companies lower cost and the expertise and infrastructure needed for certain tech products.
NASDAQ: NVDA
Key Data Points
Manufacturing in Arizona -- and Taiwan
Though Nvidia is a customer of Taiwan Semiconductor Manufacturing's newish Arizona plant, most manufacturing for Nvidia is done in Taiwan. TSMC, which has been heavily investing in its U.S. presence, aims to produce Nvidia's Blackwell chip in Arizona but still must send the product to Taiwan for packaging. The U.S. facility doesn't have the capacity necessary to do the complete job.
All of this means Nvidia still heavily imports from Taiwan and now faces the 32% tariff the U.S. has imposed on that country. If Nvidia doesn't find a way to compensate by trimming costs elsewhere, and the U.S. maintains the current tariff level, this extra expense clearly will impact the company's earnings. Of course, other U.S. tech players are in the same boat -- this headwind isn't exclusive to Nvidia.
Even after recent share-price declines, should you buy Nvidia stock against this backdrop? At times like these, it's particularly important to look at the situation through a long-term lens. But yes, if the tariff situation remains unchanged, it will hurt Nvidia to a certain degree.
Jensen Huang's positive track record
It's important to note that Nvidia aims to bring more production into the U.S. and may be working on other ways of minimizing negative impacts. Chief Executive Officer Jensen Huang has shown his ability to be proactive over time, staying ahead of competitors and forging ahead into new high-growth areas like AI. He's also handled crises, like export controls on technology to China. He led the development of a new chip for that market to respect export-control guidelines.
All of this means there's reason to be confident about Nvidia's ability to manage the current crisis and grow earnings over the long term, even if the company experiences pressure in the near term.
Meanwhile, the stock is trading for 20x forward earnings estimates, down from 50x earlier this year. At that price, it looks like an absolute steal, considering all of the positive points I've just mentioned -- even against the tariff backdrop. Amid the tech sell-off, there's a major opportunity, and that's the chance to buy Nvidia right now on the dip and hold on for the long term.
