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A Trump Victory Could Boost NVIDIA’s Share Price By 25%

Eric Bleeker

Published: July 21, 2024 11:25 am

A Trump victory boosting NVIDIA (Nasdaq: NVDA) shares by 25%? Many investors might be thinking the opposite after this week. After all, comments from Donald Trump about Taiwan rattled markets.

Yet, there is reason to believe that Trump would be more amendable to changing trade policy in China. We break down why that could potentially boost NVIDIA’s shares by up to 25% if that scenario played out.

Need to Know News

• Betting markets currently predict Donald Trump has a 2/3 chance of winning the Presidential election in November.
• The Biden Administration has been very hawkish on China, especially when it comes to semiconductor policy. Just this week news leaked that the administration may pursue even tougher restrictions on chip-making equipment.
• While Trump’s policy is a moving target that’s tough to pin down, he is always looking to negotiate. Whereas we know Biden’s stance on China, Trump could use access to chips as a negotiating stance to get concessions in other areas like tariffs.
• Many AI stocks dropped this week due to political fears. If you want to pick up some of the most high upside stocks in the market “on sale,” check out our brand-new “The Next NVIDIA” report that lays out the next megatrends in AI and the companies we’re confident can dominate them.

Here are some of the key points from 24/7 Wall St. Analysts Eric Bleeker and Austin Smith.

• In betting markets, Donald Trump is now a 68% favorite to win the election in November.
• Obviously, the time to position your portfolio for potential political winners isn’t after the election, its today when there’s still some uncertainty and many investors aren’t looking at political angles. 
• The political angle on chips is so much more important than 2016, when Trump was first elected and NVIDIA was a relatively “tiny” company. 
• The biggest political impact on NVIDIA currently is the company’s limitations in selling to China. The country has import bans on advanced semiconductors,. 
• Due to this, NVIDIA has been having to sell an inferior product – the H20 – relative to Huawei’s Ascend 910B, which is the homegrown chip. 
• Now, some of NVIDIA’s more cutting-edge chips do get into the country, but there is no question NVIDIA is missing out on massive orders to companies like Tencent, Baidu, and Alibaba if it had its best chips in the country. 
• So, let’s turn to Trump and China. 
• What Trump says about a country is always a moving target. Partially, that’s because of Trump’s views on deal-making. 
• So, could Trump use Chinese access to some currently blocked American technologies as a negotiating card?
• Here’s what is potentially at stake: in the first quarter of the year ASML (Nasdaq: ASML) – whose EUV machines are blocked in China – still reported 49% of sales and 20% of backlog from China. 
• On its most recent earnings call NVIDIA said, “business in China is substantially lower than in the past.” 
• And,  “our data center revenue is down significantly from the level prior to export controls in October” 
• The company is currently seeing “mid-single-digit-percentage” of their data center revenue from China. 
• Compare that to the third quarter, when NVIDIA reported sales to China “consistently contributed approximately 20 to 25% of Data Center Revenue” over the past few quarters. 
• The key point, since October import control were enacted NVIDIA’s percent of revenue from China went from about 20-25% down to about 5%. 
• What does that mean in dollars and cents? Well, high-end estimates from Wall Street now have NVIDIA at $200 billion in Data Center revenue next year.   
• That could produce $5 per share in next year’s EPS and take NVIDIA shares from $175 to $200 per share assuming the company keeps trading in a 30X to 35X forward earnings range. 
• But, if a deal was struck with China, NVIDIA could suddenly be looking at $6 or more in EPS, and potentially an upside scenario of $250 per share from the supercycle around its next-generation Blackwell architecture. 
• Another key point here is the downside risk this mitigates. 
• The greatest threat to NVIDIA investors is there’s blowout demand for Blackwell, but after its release large cloud providers like Microsoft, Amazon, Google, and other large customers like Meta pull back on spending in the second half of 2025. 
• If a deal was struck with China, the growth from those sales could likely “cover over” any potential spending pauses from large US companies. 
• So again, we can’t say for certain a deal is coming. However, we also know exactly what the policy of the Biden administration is, and its not about deal-making with China. It has been very hawkish policy in this area (semiconductor sales to China). 
• We’re not here to give an opinion of whether that’s good or bad politics, but we are here to tell investors its bad for NVIDIA as a stock. 
• So, if Trump wanted to use semiconductors as a negotiating tactic for larger China policy. The key point is the upside for NVIDIA investors would be significantly larger than most investors realize.

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Transcript:

Eric, I wanted to turn our attention to the upcoming US presidential election.

In betting markets today, Donald Trump is now a 68% favorite to win the election in November.

Obviously, the time to position your portfolio for potential political winners is not after the election, it’s today, before.

While there’s still some uncertainty and many investors aren’t necessarily looking at political angles, nor do they have all the information from statements made by the candidates or soon to be president.

Eric, I wanted to look at NVIDIA today in anticipation of this November election.

How might NVIDIA be impacted by a Trump victory?

They’re now one of the largest companies in the world.

Semiconductors are suddenly seen as a national security issue, but it is also the hottest, most in-demand growth sector ever.

So you have this bit of a challenge where there’s billions of dollars trying to flow into semiconductors to purchase as many as possible, but then there’s bottlenecks due to manufacturing constraints, potentially terrorist political risks and geopolitical issues.

So what would happen to NVIDIA if Trump becomes president?

Yeah, Austin, we’re filming this on Wednesday afternoon.

Obviously, this story is all of a sudden in the headlines because overnight Bloomberg ran a story that the Biden administration is eyeing essentially stronger export controls on semiconductors.

So suddenly this is big news.

In 2016, when Trump was first running for the presidency, the fact is semiconductors weren’t seen as a strategic issue.

NVIDIA was a tiny company.

But today it’s one of the biggest political situations there is.

So let’s talk about what’s happened in this space and what’s maybe we’re looking at in the future and what’s kind of been impacting stocks this week.

Now, there’s been previous export restrictions that affect NVIDIA’s chips.

Due to this, they have to sell an inferior product into China.

It’s called the H20.

Its main competition is Chinese chips, primarily Huawei’s Ascend 910B, which is a home-grown chip.

Now, it should be noted, some of NVIDIA’s Cognac chips, they do still get into the country, but there’s no question NVIDIA is missing out on massive orders because you have huge Chinese companies like Tencent, Baidu, Alibaba, who are all making massive investments into AI, just like the major American tech companies.

Let’s turn for a moment to Trump and China.

What Trump says about a country is always a moving target.

Partially that’s because Trump’s views on any particular matter are about deal making.

So the question is, could Trump use China’s access to some currently blocked American technologies as a negotiating card in the future here’s what’s potentially at stake in the first quarter of the year asml who makes euv machines that make the most advanced chips in the world those are blocked in china and it still reports 49 of their sales from china with a smaller backlog of about 20 in NVIDIA’s case

They send their most recent earnings call that business in China has substantially lowered relative to the past.

And their data center revenue is down significantly prior to export controls in October.

So we’re now talking them getting mid single digit percentage of their all important data center revenue.

That’s our AI chips.

So we’re talking maybe five percent.

Compare that to prior to the initiation of export controls, they were getting a consistent contribution of about 20 to 25% from China.

So here’s the bottom line.

Right now, we now have in the news even stronger controls

The point for NVIDIA is they’re already at 5%.

All the growth that they’ve seen in their most recent quarter, data center sales were 427% year over year.

That’s with Chinese demand already collapsing.

So there’s not a lot more downside to go.

But if there was a deal struck from a new administration, since it seems the Biden administration is getting even more hawkish when you look at today’s headlines,

Well, in dollars and cents figures, we’re talking about NVIDIA producing some estimates going to $5 per share in EPS next year, which is where when you take a 30 to 35 times ratio, you can get share price at 175 or 200.

But if they had access to the Chinese market and you’re looking at $6 or more in EPS at those multiples, you get to a scenario where NVIDIA could see up to $250 per share from the emerging super cycle that’s emerging from their next architecture, which is Blackwell.

Once again, though, Another key point is this mitigates downside risk as well if the situation were to play out.

Because the biggest threat to NVIDIA is that huge customers like Microsoft, Amazon, that have large cloud budgets, if they stop growing them at the rate or even pull back in the second half of 2025 after getting their Blackwell orders, that’s when NVIDIA, you could start seeing some weakness in their sales growth

If there was some growth from China to buffer over that, it would essentially not eliminate, but would really reduce some of the potential downside from this scenario.

So, hey, Austin, I know that’s a lot to ingest for everyone out there.

The recent headlines have focused on Trump kind of making some comments about Taiwan saying effectively they should pay for their own defense.

We know how Trump always works.

He makes a big point.

This is the opening of kind of his comments for negotiation.

I think if he was elected, It doesn’t automatically mean that there’s going to be a deal to get NVIDIA chips back into China.

But I think there’s two paths with Biden.

They’ve signaled hawkishness on this issue and they want to move further.

With Trump, there’s always a potential for a deal on the table.

And I just gave the math how that could essentially be an additional 25% of upside if it were to be realized.

So this is something investors should definitely put on their radar.

It’s bad news.

It’s hogging the headlines today to the downside.

But there is potential for some upside there if Trump is elected, which once again, right now, betting markets are putting at about 68%.

Eric, I really love this perspective because it’s important to remember, you know, certainly NVIDIA , the hottest stock on earth for the last year or so, any headline that looks like it might be negatively impacting them is going to have an outsized market reaction.

But we really need to look at the full perspective here, which is only 5% of revenue coming from China.

NVIDIA has way more upside.

from falling relations with China than they have downside from increasing tensions.

They’re already restricted.

They’re already this is not a major market for them.

So China is all upside for them.

And this is a case where the headline, it’s probably just it’s furthering what is already a restricted and pretty small business line for the company.

And instead, if we look forward to a Trump victory, we could be looking at almost a 25% upside on a video share.

The deal.

And one thing I need to throw out there, too,

We just finished the next NVIDIA report.

This is 38 pages, all on cutting edge situations in semiconductors.

If you’re looking at NVIDIA, you’re looking at the chip situation, you wish you had some software plays in there.

In here, we have one of our top software plays.

I believe upside potential for this company if it hits its opportunities right.

You’re looking at tenfold or more across the next decade.

I personally prepared this.

I’ve done a lot of work in the space.

So if you want to get more AI stock ideas, just type in your browser right now, video.nextinvidia.com.

The report is absolutely complimentary.

It’s a service for investors from 24-7 Wall Street.

So Austin, I would be remiss if I didn’t tell investors, go out there, take a look at this report today.

It is very thorough.

You’re going to learn a lot there’s some mind blowing stuff and I promise you that.