President Donald Trump’s turbulent tariff rollout and subsequent pullback have rattled the stock market and confused economists and business leaders. While some of the most intense tariffs are officially under a 90-day pause, a 10% tariff on most imports is still in effect, as is a hefty 145% import tariff on Chinese goods.
The semiconductor industry has so far avoided the impact of tariffs, which is great news for artificial intelligence leader Nvidia (NVDA 1.30%). But what, specifically, do the tariffs mean for Nvidia, and how could they potentially affect the company’s growth? Let’s take a look.
Image source: Nvidia.
Semiconductors are exempt from the tariffs, for now
The most important piece of information for Nvidia investors in all this tariff turmoil is that semiconductors are exempt. That’s fantastic news for Nvidia, considering that its processors are made in Taiwan by Taiwan Semiconductor Manufacturing (TSMC). The Trump administration temporarily slapped a tariff as high as 32% on the country, before reducing it to 10%. Because of the semiconductor exemption, the current tariff percentage doesn’t apply to Nvidia’s processors made in Taiwan.
In addition to Nvidia using TSMC for manufacturing in Taiwan, Nvidia also makes about 16% of its total revenue from sales in the country, so the semiconductor exclusion is both helping Nvidia’s manufacturing costs and its processor sales.
The exemption is also especially important because it means that the trade war between China and the U.S. won’t impact Nvidia. The company sells some of its processors to China-based customers — and the country accounts for about 13% of its sales. So incurring a 145% tariff, or any substantial tariff, would intensely jolt Nvidia’s business.
Importantly, President Trump also recently cleared Nvidia to sell its H20 AI chips to China. The processors are less powerful than its Blackwell lineup and thus won’t provide China with any advantage in artificial intelligence. Trump was previously considering holding back sales of H20 chips as the U.S. and China vie for AI dominance.
But that doesn’t mean semiconductor tariffs will never happen
It’s worth mentioning that President Trump has threatened to include semiconductors in his tariff plans. Earlier this month, he told a group of reporters that tariffs on semiconductors are coming “very soon.”
Fortunately, it seems as if those plans have likely been put on pause for now, along with the rollback of other tariffs.
But it’s important for investors to know that with Trump considering semiconductor tariffs as of just after a couple of weeks ago, it’s entirely possible that processors could once again be added into the tariff mix.
While doing so would be very unpopular, President Trump has proved with the initial tariff plans that following the trade status quo isn’t a priority.
Can Nvidia keep growing despite Trump’s tariffs?
I think the short answer is yes. For now, the tariffs don’t have an impact on Nvidia’s semiconductor components, its outsourced manufacturing in Taiwan, or sales in China or elsewhere.
However, tariffs, or a China trade war, would end up slowing down the U.S. economy, and affect Nvidia, along with nearly every other U.S. company. But even in that scenario, artificial intelligence spending may still continue as tech leaders clamor to deliver the best AI products and services to customers.
AI could generate an estimated $15.7 trillion in global GDP by 2030 according to a PwC study, and no big tech leader wants to be left behind in this ultra-competitive space. That means they’ll likely continue spending significantly on Nvidia processors even in the wake of an economic slowdown.
However, should President Trump impose tariffs on semiconductors, all bets are off on this assessment.
Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.