When it comes to AI stocks, Nvidia (NVDA 0.22%) is king. Its graphics processing units, or GPUs, are widely considered the best in the industry. And because the AI revolution runs on specialized chips like these, it has become a crucial supplier for the entire industry.
There's only one problem: President Donald Trump's trade war with China could have a sizable effect on the GPU industry that could reverberate for decades to come. Some analysts think Nvidia will suffer from the trade war. Others think the company will benefit.
How exactly will Trump's trade war play out for Nvidia over the next three years? There are two factors I'm monitoring closely.
Nvidia could lose 100% of its sales to China
The ongoing trade war with China brought several challenges to Nvidia's current business model. Restrictions on open-source Chinese AI models including DeepSeek and Qwen could inhibit AI demand from consumers and businesses, resulting in less demand for GPUs, and thus less demand for Nvidia's products.
These restrictions may also hinder development and innovation efforts, reducing both near-term and long-term demand for Nvidia's GPUs. But the most direct hit the chipmaker is set to incur from the ongoing trade war is export restrictions on GPUs themselves.
Sales to China represented more than 10% of the company's total sales in recent quarters, with $4.6 billion in H20 chip sales alone in the quarter before export limits were put into place. Management estimates that export restrictions cost it $2.5 billion in potential sales in the first quarter, with another $8 billion in lost sales estimated for the second quarter.
Nvidia recently eliminated China entirely from its ongoing sales forecasts. While the situation remains fluid, this should be a sign that management expects very little out of the Chinese market. This is undoubtedly a negative for the stock, but there's another factor that could be just as influential in the long term.
Image source: Getty Images.
Expect manufacturing to move onshore to the U.S.
The trade war has created plenty of uncertainty when it comes to manufacturing supply chains. Producing GPUs in another country could, at any point, incur heavy tariffs or even outright bans. To get around this, many companies have promised to redirect spending to the U.S.
Earlier this year, CEO Jensen Huang said that the company will invest heavily to add manufacturing capabilities in the U.S.: "Overall, we will procure, over the course of the next four years, probably half a trillion dollars worth of electronics in total. And I think we can easily see ourselves manufacturing several hundred billion of it here in the U.S."
None of this is set in stone. Much of it could be a political signaling device. Fabricating chips in the U.S. has, on average, proved more costly than producing them in other countries.
Plus, the trade war could make securing rare-earth minerals from countries like China more difficult, adding complexity to moves that are designed to reduce manufacturing complexity.
Overall, Trump's trade war is likely to have two effects on Nvidia over the next three years. Its China sales should remain far lower than their potential, while manufacturing costs should rise if they are produced in the U.S. -- even if the company's efforts do insulate it somewhat from future trade war escalations.
