Prepare for a significant NVDA pullback until the company reports more conclusively positive numbers on Blackwell
My breakdown touches upon:
1) Overall market context; 2) NVDA specific policy changes coming under Trump administration
Overall market context is important, especially if we are headed for a correction or a consolidation period after the period of exuberance we have seen across asset classes.
The overall market has largely yawned at potential tariffs, regulatory framework, and possibility of more export controls to Chinese market that could be enacted under a second Trump administration. Ex Goldman analyst Robin Brooks has alerted that markets are discounting the prospect of tariffs and how their effects could be really damaging for equities in 2025 ([https://www.benzinga.com/24/11/42134031/markets-got-it-wrong-after-elections-prospects-of-tariffs-not-good-for-equities-vs-dollar-says-ex-goldman-sachs-analyst](https://www.benzinga.com/24/11/42134031/markets-got-it-wrong-after-elections-prospects-of-tariffs-not-good-for-equities-vs-dollar-says-ex-goldman-sachs-analyst)). I don’t know whether there is hyperbole here, and if tariffs will actually cause pain for stocks, but it is at least worrying that the market has not seemed to care at all now that we know Trump will take office in January.
Goldman Sachs’ forecast shows robust 2.5% growth for the US economy in 2025, with slightly worst results if Trump enacts a 10% tariff on all imports. ([https://www.goldmansachs.com/pdfs/insights/goldman-sachs-exchanges/2025-outlook-will-tailwinds-trump-tariffs/OutlooksFinalTranscript.pdf](https://www.goldmansachs.com/pdfs/insights/goldman-sachs-exchanges/2025-outlook-will-tailwinds-trump-tariffs/OutlooksFinalTranscript.pdf)) Frankly, I believe Goldmans’ forecasting model is overly optimistic for two reasons. First, their estimates does not include a 10% across-the-board tariff on all imported goods, which Trump campaigned on. Nor does it include a scenario in which a large deportation program – both of which could have the effect of suppressing economic growth if implemented.
Wage growth has largely slowed and consumers would feel fatigued if a new bout of inflation rips across the economy—this would definitely have an impact on earnings. On top of this, a weakening labor market seems to threaten consumers’ comfortability with rising prices again.
One could argue that Trump’s immigration policies, including his plan for a large deportation initiative could see a tighter labour market, and rising wages that could counter a weakening labor market and slowing wage growth. But it’s important to be cognizant of the fact that tariffs would happen instantly, whereas deportations take time, and their effects would not be felt immediately throughout the economy.
Now that I’ve covered the overall market context, let’s get specific on NVDA.
Since NVDA reported earnings last week, the stock price has seesawed in pre-market trading as well as during trading hours. There has been plenty of pontification by market analysts either discounting or raising concerns about slowing sales growth and lower guidance going forward. The stock ended last week largely down, with significant selling happening on Friday.
But I want to focus on what’s in store for NVDA under a the administration.
Howard Lutnick, nominated by President-elect Donald Trump as Secretary of Commerce and USTR, has signaled his commitment to intensifying export controls on advanced semiconductors and related technologies to China. Lutnick’s statements and policy positions suggest a focus on maintaining U.S. dominance in critical technologies, particularly in the semiconductor sector, as a countermeasure to China's rapid advancements in artificial intelligence and military applications.
In a recent interview, Lutnick described semiconductors as "the cornerstone of America's technological edge" and emphasized that "export controls are not merely economic tools but strategic weapons to protect our national security." He has voiced strong support for continuing and expanding the Biden administration's measures, including targeting AI chips and semiconductor manufacturing tools.
Under Lutnick's guidance, policies could further restrict sales of Nvidia's next-generation Blackwell chips to China. He has highlighted concerns about these chips enabling advanced AI capabilities that could be leveraged by the Chinese military. Lutnick stated, "We cannot afford to let cutting-edge American technology become a tool for our adversaries," signaling potential restrictions on Nvidia and other U.S. tech firms developing high-performance semiconductors.
The implications of Lutnick's policies could be significant. Stricter controls on exports, including modifications to loopholes that allowed companies like Nvidia to tailor products for the Chinese market, might accelerate China's efforts toward semiconductor self-sufficiency. U.S. firms could face reduced revenues, but Lutnick argues that "short-term sacrifices are essential for long-term strategic security”.
In addition, we cannot discount the Biden administration making last minute policy moves to box in opponents and make it harder for the new incoming administration to deviate. This has already been reported by Reuters ([https://www.reuters.com/technology/chamber-commerce-sees-new-us-export-crackdown-china-email-says-2024-11-22/](https://www.reuters.com/technology/chamber-commerce-sees-new-us-export-crackdown-china-email-says-2024-11-22/)). According to this report, the Biden administration is set to enact new regulations could make up to another 200 Chinese chip companies subject to a trade restriction list that bars most U.S. suppliers from shipping goods to the targeted firms. This news broke on Friday, but ten minutes before the market closed. If this is correct, it will put price pressure on the semiconductor sector, which could affect NVDA as well.
I really do believe given this context, we are entering a period where NVDA could suffer, at least until we have more clarity on tariffs, export control regulations, and Blackwell sales numbers which won’t be reported on for some time.
The largest NVDA drawdowns that have happened recently (March-April; June-August; August-September) averaged anywhere between 21-30%. Smaller, more muted corrections have also occurred of around 10% in the stock since. A similar effect here (10% or so from its high of 152.88 would bring shares close to 137, and break through a key support level. A larger plunge could see it closer to 120 or below.
All in all, a dip here would be a good opportunity to buy up shares at a discounted price.
I will be holding cash for buying on what I believe will be significant dips coming in the coming weeks, in the lead-up to inauguration and what will be a flurry of announcements as Trump will want to signal change and do so in true Trump fashion: loudly.