Semiconductor maker Nvidia (NASDAQ:NVDA) is certainly having quite the day in the markets. Shares of the high-performance chip maker are up nearly 4% at the time of writing, with momentum building throughout the day, following news that former president Donald Trump will have the word “former” removed from his title.
The Republican Party is expected to win not only the White House and Senate (which were confirmed yesterday evening), but could also take control of the House, meaning the policies Mr. Trump wants to put in place could move through the democratic process much quicker than many previously thought possible. Overall, split government is generally considered to be better for equities. But today’s rally suggests that growth (and inflation) expectations are heating up.
Most stocks are getting a big boost today, and it shouldn’t be a surprise that Nvidia is among the top movers once again today. Let’s dive into what these developments could mean for Nvidia over the medium-term (the next four years).
Key Points About This Article:
- Donald Trump has won the election, and stocks across the board are ripping higher today.
- The question is whether Trump’s policies will result in a more medium-term spike for chip makers like Nvidia, or if this rally is overblown.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
Watch Republican Policies Closely
Donald Trump has run on a number of policy positions which are broadly positive for U.S. manufacturing jobs. With Nvidia’s competitors taking advantage of Biden-led bills, such as the CHIPS Act, to bring some chip manufacturing on-shore, it will certainly be interesting to see whether Donald Trump furthers this spending, or re-jigs the legislation to benefit some chip makers over others. Currently, Nvidia utilizes a foundry model, where chips are produced mainly in Taiwan and shipped around the world. The company’s value is largely dependent on the company’s IP, and the market’s pricing of this intellectual property.
Any sort of additional government funding to bring more Nvidia jobs on-shore could be good for both the company and its future growth plans. Chips have become geopolitical negotiating points, and we know how much Donald Trump prides himself on his ability to negotiate with foreign powers. And with tensions likely to heat up between the world’s two largest economies, I wouldn’t be surprised to see some sort of additional funding on this front.
Looking at where longer-term bonds are headed today, it does appear the market believes that government spending (or a lack of revenue due to tax cuts) could mean higher deficits and higher longer-term rates. Growth and inflation expectations are also picking up, so we’ll have to see if traders are right. But it’s generally true that bond investors are much smarter than equities investors, and have to be – the size of the bond market eclipses the stock market many times over. We’ll see.
Growth and Inflation Expectations
Sticking with that discussion for a minute, I do think the overall market’s pricing of growth expectations could provide a near to medium-term boost for Nvidia. The company’s ability to see its sky-high revenue growth rates accelerate depends on the view companies have on the future economy. Today, expectations are that growth will remain robust, meaning corporations may ramp up spending plans further on their AI chip acquisitions, to develop and integrate AI applications into their business models faster than their peers.
If this does result in a boost to Nvidia’s overall revenue and earnings growth rate, investors could have a fundamental reason to buy this stock now. This does appear to be at least one of the reasons why Nvidia is soaring today, and I do think is a factor that investors will continue to focus closely on.
In past quarters, the company’s revenue growth rate of more than 260% has been truly something to behold. The question is whether this growth rate is not only sustainable, but could actually pick up. That said, if the commentary from CEO Jensen Huang that demand remains “insane” is truly the case, and corporations feel the need to spend, it’s entirely possible this growth rate could accelerate from here.
Could Nvidia Double Over a Trump Presidency?
Four years is a long time, and Nvidia is a stock that’s doubled over much, much shorter time frames in recent years. Thus, I think the answer to this question is an obvious “yes.” It’s entirely possible that by the end of next year, Nvidia stock could double. After all, a company is worth what investors are willing to pay. And right now, investors are certainly willing to pay up for Nvidia and its outsized growth.
I’m of the view that this near-term surge may come to a head at some point. Today, there’s simply incredible enthusiasm in the market. That’s great for companies like Nvidia, but it also means that the company’s upcoming quarterly results will have to reflect the market’s current optimism. Otherwise, there could be some reversion trading that takes place from here.
This will certainly remain a top stock investors watch moving forward, and I’ll keep a close eye on this one in the weeks leading up to Donald Trump’s inauguration.
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