Shares of Nvidia (NVDA 0.51%) rallied 24.1% in May, according to data from S&P Global Market Intelligence.

While Nvidia reported an earnings beat late in the month, that post-earnings gain only amounted to a small portion of May's gain.

Before the earnings release, Nvidia, like many technology stocks, rallied in a big way when tariff tensions eased in mid-May, after the U.S. and China announced a détente in their trade dispute, paving the way for talks. Around that time, the Trump administration also made deals for significant AI chip sales to the United Arab Emirates and Saudi Arabia.

Nvidia is part of the art of the deal

Like many technology and semiconductor stocks, Nvidia rallied in a big way after May 12, when U.S. and China agreed to ratchet down their tariffs on each other. The U.S. lowered its tariffs on Chinese goods from 145% to just 30%, which incorporates the 10% universal tariff and extra 20% tariff meant to penalize China for the flow of fentanyl to the United States.

Nvidia, like most stocks, especially technology stocks, rallied on the news, as these stocks had still yet to fully recover after the post-"Liberation Day" stock market crash on April 2.

The immediate "relief rally" was soon followed by the announcement of large AI deals the Trump administration struck with both Saudi Arabia and the UAE. In Saudi Arabia, Humain, a division of the Saudi Arabia Public Investment Fund, will build a 500 MW AI cluster, composed of "several hundred thousand" Nvidia GPUs, which will be deployed over the next several years. In addition, a deal was soon reached with the UAE's G42, whereby Nvidia will be able to ship 500,000 Nvidia chips, starting this year.

These big deals in the Middle East probably boosted Nvidia's growth expectations, as the current administration also officially nixed the Biden administration's "AI diffusion rule." That rule was supposed to go into effect May 15 and was to limit AI chip sales to certain countries depending on their friendliness to the U.S., as well as the potential for chips to be smuggled to adversaries such as China.

Yet while the administration relaxed chip sales to countries such as the UAE and Saudi Arabia, it erected even stronger barriers to China. In April, the Trump administration banned the sale of Nvidia's H20 chip to China, which was a modified version of Hopper deemed appropriate for the Chinese market. But without guidelines for a replacement, Nvidia had to take a $5.5 billion inventory charge to its H20 inventory.

Despite the Hopper limitation, Nvidia was still able to beat expectations for its fiscal first quarter ending in April and reported on May 28. In the quarter, revenue grew 69% to $44.1 billion, with adjusted (non-GAAP) earnings per share up 33% to $0.81. The lower profit growth was due to the H20 writedown, but Nvidia was able to beat expectations anyway.

All in all, the results seemed to reassure investors that the company should be able to manage geopolitical tensions, and that its supply issues ramping the new Blackwell chip have largely been resolved.

Bear and bull cases swirl about

After May's recovery, Nvidia trades at 44 times earnings and 31 times forward earnings.

That's a reasonable multiple if Nvidia can maintain its dominance in AI systems and find a way to regain some of its lost China revenue. This year, all eyes will be on the company's new Blackwell chip, as well as how Nvidia's customers innovate new and exciting AI use cases.

On the risk side, investors should watch for newer custom AI chips designed in-house by the cloud giants, which could continue to take share. While Nvidia is currently the dominant standard in neutral GPUs that work for a variety of uses cases, the emergence of custom chips that can run workloads at much lower prices could eventually slow down Nvidia's torrid growth.

So with Nvidia's stock now back closer to all-time highs, the risk-reward is more balanced today.