Dear Reader,
Good morning!
Happy Wednesday.
A lot of folks have written in to ask if Trump’s tariffs on semiconductors are going to hurt Nvidia.
Trump came out Monday walking back a lot of the talk of blanket tariffs for everybody to come on April 2nd; positive news that sent the market higher.
But about semiconductors he promised tariffs would go, “substantially higher over the course of a year.”
Remember, most semiconductors still come from Taiwan.
Unlike cars and pharmaceuticals, which Trump also said would face 25% tariffs, chips aren’t things most Americans buy directly.
But they power every device we have…
Your phone, Wi-Fi router, laptop, car, household appliances – you name it.
In fact, a brand-new car contains literally thousands of semiconductors.
A 25% tariff on semiconductors is going to raise the price of all these things we buy – phones, laptops, cars, etc.
And yes, the cost of Nvidia chips will increase.
So, will this hurt Nvidia’s stock?
Yes and no.
Let me explain.
The companies buying Nvidia’s chips seem to want an infinite amount of chips – the demand is almost insatiable.
Facebook, Microsoft, Apple – they’re all buying Nvidia chips en masse.
Nvidia has “pricing power” – meaning they can raise their price and their customers will keep buying.
So they are very likely to be able to push the cost of this tariff through to their end customers – these giant Magnificent 7 companies spending hundreds of billions of dollars a year on Nvidia chips.
But what does that mean for these companies, like Microsoft?
It means they’ll pay more for chips, which means their profits will go down.
So why is Trump doing this?
He’s taking a very different approach than the Biden administration did to bring semiconductor manufacturing back to America.
The Biden administration passed the CHIPS Act, which I support, and I support Trump’s moves as well – anything that gets semiconductor manufacturing back to the United States as quickly as possible.
Because the U.S. has an Achilles heel, and that is Taiwan.
I’m sure you remember the story of the Greek demigod Achilles, who was basically invincible.
But he had that little part his mother held as she dipped him in the River Styx to make him invincible; his only vulnerability in an otherwise strong body – the only way he could be destroyed.
Taiwan is our Achilles heel – a massive weakness in an otherwise strong body.
The Biden administration’s answer was government spending – the bipartisan CHIPS Act pushed centralized control and government incentives to spur domestic manufacturing.
Trump’s solution is more geared toward government intervention in tariffs – to incentivize companies like Nvidia, Samsung, etc. to really spur manufacturing in the U.S.
We shall see how this unfolds.
So, no, I don’t think these tariffs are likely to hurt Nvidia’s stock, because they have the pricing power to pass the costs along to their customers.
But it’s likely to hurt everybody else’s stock – because, again, if Microsoft spends $100 billion on Nvidia AI chips a year, and now they have to spend $125 billion on chips, that means $25 billion less in profit.
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