Nvidia (NVDA 2.91%) has been one of the hottest stocks in the market since 2023 but has cooled alongside all of the other growth stocks during the latest sell-off. Nvidia has been a top stock because of its involvement in the artificial intelligence (AI) race since its products power much of the training and inference for that technology.
However, the stock recently was now down more than 30% from its all-time high, due to the impact of President Donald Trump's tariff announcement. But is Nvidia truly affected by this? Or is it just guilt by association?
Semiconductors are exempt from tariffs
Nvidia's graphics processing units (GPUs) and the other components that support them have seen massive growth alongside AI demand over the past few years. In just two years, revenue climbed from under $30 billion to $130 billion, a total gain that no company has matched.
NVDA Revenue (TTM) data by YCharts. TTM = trailing 12 months.
But with these new tariffs, there are fears that Nvidia's business could be significantly harmed.
First, Nvidia doesn't make any of the chips that go into its GPUs. It sources a significant amount of them from Taiwan Semiconductor Manufacturing (TSM 3.77%), which has nearly all of its production capabilities overseas. Taiwan was recently hit with a 32% tariff, which would cause the price of chips that go into the company's GPUs to rise significantly.
However, there's one important caveat: Semiconductors are exempt from this tariff rate. This means that the price Nvidia is paying for its chips today is the same as it paid last week, which eases some fears with its stock.
Next, let's move to the company's customer base.
Nvidia's customers have a battle to win
Nvidia's biggest clients are the AI hyperscalers, which are big tech companies that are sparing no expense in building their AI capacity. Many of Nvidia's largest clients have said that they will have record capital expenditures this year, mainly due to data center buildouts to run their own AI workloads as well as others through cloud computing offerings.
NASDAQ: NVDA
Key Data Points
Investors will hear from these hyperscalers as they report first-quarter results in late April and early May, but my guess is that these plans have largely remained unchanged. It's too important to capture the AI market in its infancy, and any decrease in spending will be an opportunity for competitors to seize what they have given up.
Most of these companies have unbelievable cash flows, and if everything gets a bit more expensive, they can eat the costs.
As a result, there may be a slight decrease in data center buildouts this year, but likely not enough to really affect Nvidia. I think this makes Nvidia OK from this standpoint, too.
With the company's supply chain and customer base looking healthy, is it time to buy shares at a bargain-bin valuation?
Nvidia's stock is now priced at a significant discount
Following the sell-off, Nvidia's stock now trades at a dirt cheap level.
NVDA PE Ratio (Forward) data by YCharts; PE = price to earnings.
The stock now trades at 20.9 times forward earnings, which is close to the S&P 500's (^GSPC 1.81%) current trading range of 20. This is an unbelievable price for one of the fastest-growing companies on the market.
It will likely take positive language from the AI hyperscalers in their first-quarter results to turn Nvidia's stock around. But until that turnaround occurs, I think it's a great stock to buy right now.
