This has been a brutal year for the U.S. tech industry as a combination of challenges, ranging from political uncertainty to foreign competition, has shaken some of its core assumptions. Globalism is no longer guaranteed, and developing markets like China are transitioning from a source of low-cost labor into a viable threat to U.S. technological dominance.
The next 12 months could be a make-or-break period for Nvidia (NVDA +1.16%) as it navigates the evolving macroeconomic landscape. Let's dig deeper to decide how the company's shares might perform.
NASDAQ: NVDA
Key Data Points
Globalization might be dead. What comes next?
While it is too early to be sure, President Donald Trump's April 2 tariff announcement may mark the beginning of the end for globalization -- a system that facilitated increasingly complex international supply chains. Nvidia is a typical example of how globalized business models work.
As a fabless semiconductor company, Nvidia only designs its chips. Their actual production is outsourced to foreign companies like Taiwan Semiconductor Manufacturing (TSMC), which produces them with the help of EUV machines from the Dutch company ASML.
These international interdependencies could draw unwelcome political attention. But the good news is that Nvidia worked to preempt this exposure with the help of its manufacturing partners.
In late 2024, TSMC opened its first U.S. factory in Arizona, allowing Nvidia to source its cutting-edge Blackwell AI chips domestically. This move could shield the company from potential tariffs, which is essential for its long-term success. Even though semiconductors are currently exempt from this latest round of tariffs, their strategic nature will likely attract attention from this administration and future U.S. lawmakers, so it is advantageous for Nvidia to get ahead of this potential headwind.
China and India also seek AI relevance
Although trade war talk is stealing the show in April, Nvidia's stock price crash started in January, with the launch of the high-performing Chinese large language model (LLM) DeepSeek V3, which was allegedly developed for just $6 million. While the actual cost is still hotly debated, it is believed that V3 was built using much less advanced H800 chips while still comparing favorably to American LLMs like OpenAI's ChatGPT, which were built with substantially more expensive hardware.
Image source: Getty Images.
DeepSeek calls into question the amount of money American AI companies are spending on Nvidia hardware. And while major customers like Meta Platforms continue to plow money into the opportunity, it may be a matter of time before they face shareholder backlash over the amount being spent for minimal financial reward.
In April, an Indian start-up called Ziroh Labs added even more uncertainty to the U.S. AI market with the release of Kompact AI, a system designed to run LLMs without advanced graphics processing units (GPUs) made by companies like Nvidia. Inference (the process where an AI model uses its trained knowledge to generate output) represents a significant source of demand for Nvidia's hardware. Kompact AI aims to facilitate this process using less expensive central processing units (CPUs), which are widely available on consumer devices like laptops and computers.
What could the next 12 months have in store for Nvidia?
Over the next 12 months, Nvidia should face substantial volatility. Even though the company seems relatively isolated from the direct impacts of the trade war, that isn't stopping investors from jumping ship. Low-cost competition from China and India is also beginning to call into question the importance of its most advanced (and expensive) GPUs for training and running competitive LLMs.
With a forward price-to-earnings (P/E) multiple of 25, Nvidia's current valuation is relatively low for a company that grew fourth-quarter profits by 80% year over year. This discount already prices in much of the uncertainty. However, investors may want to wait for the stock to fall deeper into oversold territory before considering a position.
The events of early April have made this a fear and uncertainty-driven market. And until that changes, fundamentals may take the back seat.
