Nvidia analyst: “This is not over”

Nvidia is once again the one of heaviest weights on the stock market Thursday — it’s head to head against Apple — as the tech shares that exploded yesterday on President Trump’s decision to walk back the bulk of global tariffs — at least for 90 days — generated the best day for stocks since 2008.

But the relief rally obscured that fact that Trump also jacked up the administration’s tariffs on China to 125%, a level that would essentially end much of the commerce between the world’s two biggest economies, a trade relationship that is the foundation for the global tech industry.

That poses a risk even to tech giants like Nvidia, whose main product, computer chips, are exempt from the Liberation Day tariffs, as those exceptions may not last.

“Tariff fears may have receded, but this is not over,” wrote Morgan Stanley analysts covering Nvidia, in note published on Thursday (emphasis added):

“Semiconductors were exempted from ‘liberation day’, but most industry participants are convinced that this just means semiconductor tariffs will be handled differently. We don’t know what that might look like, but our hope is that it would be phased in more gradually, assuming the end goal is more domestic manufacturing of semiconductors which takes multiple year lead times.

Pharmaceuticals were also initially exempt from the ‘liberation day’ tariffs, but recent comments from the president indicate that tariffs are still forthcoming. If there are tariffs on semiconductors, the TSMC wafers, and the HBM memory, would all be assessed a tariff. That would be something like 60% of cost of sales, which for a 75% gross margin data center business is about 15% of revenues; a 32% tariff would then be about a 5% tax, which would be pretty easily absorbed. This would be much larger for companies with more typical gross margins.

Earlier this week, US Trade Representative Jamieson Greer told the Senate Finance Committee that chips (along with pharma) were excluded from reciprocal tariffs because “we think they need their own investigations.”

Moreover, Nvidia — like every other corporation — is still at risk from a recession, should one show up.

“Is NVIDIA recession resistant? No, probably not, and that remains a risk. But the type of recession also matters, as demand for GPUs remains resilient — and we would say risks to that come more from the financing side than from anywhere else. Modest drift lower in [surveys of industrial activity], or slower consumer retail from tariffs, is not a problem for GPU spending, but financial strains in venture funding would be a problem.”

Yet Nvidia remains Morgan Stanley analysts’ top pick in the chip sector, given its strong business supplying the graphics processing units at the heart of the global AI investment boom. They have a price target of $162.50 on the stock, which implies a roughly 50% upside from where the stock is trading.