Things have gone from bad to worse this year for the artificial intelligence (AI) chip king Nvidia (NASDAQ: NVDA). It all started with the emergence of DeepSeek, a Chinese start-up that used less advanced Nvidia chips to build a chatbot that could rival OpenAI's ChatGPT, supposedly at a fraction of the cost. This made some investors question what AI infrastructure spending might ultimately look like at a time when valuations across the industry were sky high.
Then, Nvidia had to deal with the threat of tariffs since the company sources a lot of its chips from Taiwan. Although Trump has excluded semiconductors from his tariffs, the administration just dealt another blow to Nvidia stock.
Nvidia's latest roadblock
On April 15 after the market close, Nvidia disclosed in a filing that the U.S. government had informed the company it would need to obtain a license to export its H20 chips to China, including Hong Kong and Macao. The government told Nvidia the purpose of this restriction is to prevent China from obtaining parts it could use to build a supercomputer. As a result, Nvidia said it expects to take a $5.5 billion charge in its fiscal 2026 first quarter due to H20 chip inventory, purchase commitments, and associated reserves.
Nvidia has been dealing with increased export restrictions to China since the Biden administration. In fact, the company created the H20 chip, which trains AI models less quickly than some of the company's most advanced chips, in order to comply with previous restrictions. Trump's latest order is likely tied to the tense relations between the U.S. and China, but considering these actions have now been building through multiple administrations, it's also possible this export restriction may outlast the current trade war. Nvidia stock is down roughly 24% year to date.
During an appearance on CNBC, Wedbush analyst Dan Ives referred to the new restrictions as a "blockade" by the U.S. government and the "first shot across the bow." He said the near-term effect is that Wall Street analysts are likely to model zero revenue from China for Nvidia this year and take earnings projections down 10%. In fiscal 2025, Nvidia generated about $17.1 billion in revenue from China, or about 13% of its top line.
Can Nvidia recover?
The export restrictions and continued uncertainty stemming from the trade war will have negative near-term impacts on the company from a margin and earnings perspective. That said, much of the sell-off this year already reflects this headwind. However, analysts largely remain bullish on Nvidia as the best-in-class artificial intelligence chipmaker in an AI industry that is still in the early innings of its growth.
Sure, the total addressable market might be smaller right now, but other chip players like AMD are facing similar challenges. Meanwhile, Nvidia's latest-generation Blackwell chip generated $11.0 billion in revenue last quarter, "the fastest product ramp in [the] company's history."
CEO Jensen Huang is already talking about the company's next chip, the Vera Rubin, which will be faster than Blackwell and could be ready by 2026. After that, Nvidia has plans for even better offerings in 2028.
The stock now trades at 23 times forward earnings estimates, near its lowest level in two years. It could be rough sledding for the industry this year, but if you can take a long-term view, this is the time to start accumulating shares. Nvidia can eventually reclaim its previous high of $153 per share, implying significant upside from current levels.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
