Nvidia (NASDAQ:NVDA) still holds the title of the top graphics processing unit chipmaker in the world. The trouble is, China is a major factor in NVDA’s market strategy — it accounts for around 25% of its revenue.
And we don’t know what is going on with China due to the current trade war and the threat that it’s going to get worse before it gets better. But is there a light at the end of the tunnel nearby for Nvidia stock?
This is what the big selloff was about. The market needed to revalue everything in the event that China holds its ground.
And from every indication, China isn’t too interested in making concessions.
This is a risky game both leaders are playing, especially for Trump since there’s a big election coming up next year.
Bad blood between the two top economies in the world isn’t going to be a great message to sell voters.
The Chinese, on the other hand, can afford to wait. They will manage their short-term pain and look for a better deal either from a re-elected Trump or a new president. Plus, they’ve made it more difficult for U.S. companies that operate in China.
At the same time, China is expanding its Shanghai Free-Trade Zone to attract tech companies. Tesla (NASDAQ:TSLA) is already there, along with a number of other large U.S. firms. And JPMorgan Chase (NYSE:JPM) was just given control of what is now the first foreign-owned Chinese asset management firm.
The point is, China is taking with one hand, and giving with the other. Another example of this is soybeans. The U.S. was China’s top soybean supplier until the trade war began. Then, China cut off U.S. soybeans. But aside from stockpiles, there didn’t seem to be a viable solution to the country’s lack of supply. Now, China has begun producing soybeans on land in eastern Russia, after the two countries cut a deal for China to lease the land and provide the farmers.
When it comes right down to it, soybeans and GPUs are not that different in the world of trade. Although, given China’s poor relations with Taiwan and the U.S. crackdown on production facilities moving import and export operations to other Asian countries to avoid sanctions, there’s less wiggle room on the GPU side.
Bottom Line on NVDA Stock
While NVDA stock is up 13% year-to-date, it’s off about 40% in the past year. Its second-quarter earnings are due out Aug. 15 and won’t show many signs of optimism, especially heading into Q3 and Q4 given the U.S.-China trade situation.
Growing competition from rival Advanced Micro Devices (NASDAQ:AMD) doesn’t help either.
But much of that is baked into the price here. While NVDA stock has been trading between $150 and $160 in the last week, the trouble is uncertainty — the kryptonite of the stock market. In the long run things should be all right for Nvidia stock, but for now it’s a falling knife.
My Portfolio Grader rates NVDA stock a D right now; there are better choices.
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Source: Investor Place