NVIDIA Bets on Sovereign AI: Will It Shield Against Trade War?

NVIDIA Corporation NVDA is facing a major sales hit from U.S. export restrictions, particularly from the ongoing trade war between the United States and China. In the first quarter of fiscal 2026, the company lost $2.5 billion due to blocked shipments of its H20 chips to China, and it anticipates losing another $8 billion in the second quarter. To reduce this trade war risk, NVIDIA is pushing deeper into sovereign AI projects.

Sovereign AI refers to countries building their own national AI infrastructure, using trusted platforms to protect data, boost innovation and maintain control over their AI systems. NVIDIA is playing a key role in these efforts. It has announced major AI factory projects in Saudi Arabia, where it plans to deliver 18,000 AI chips.

In Europe, it has received strong backing from leaders in France and Germany for its sovereign AI projects. The European Union is aggressively investing in AI with a planned investment of $20 billion to build four AI gigafactories across the region. The company is also partnering with firms like Foxconn and local governments to build AI infrastructure in Taiwan and the UAE. This bodes well for NVIDIA’s sovereign AI initiative.

Sovereign AI gives NVIDIA a chance to build long-term partnerships in regions not affected by China-related trade controls. These projects will rely on NVIDIA’s full-stack solution, including graphics processing units (GPUs), networking tools (like NVLink and Spectrum-X), software platforms (such as CUDA and NeMo) and AI services. Once adopted, this system is hard to replace due to the massive capital investment.

While sovereign AI won’t fully replace the scale of China’s market, it gives NVIDIA access to new territories that want to develop AI infrastructure locally. This could help balance the impact of trade restrictions and support NVIDIA’s long-term growth.

Can Rivals Keep Up With NVIDIA’s Sovereign AI Push?

Two competitors, Advanced Micro Devices, Inc. AMD and Intel Corporation INTC, are also trying to grow in the AI infrastructure space. However, they are far behind NVIDIA when it comes to sovereign AI projects.

Advanced Micro Devices is gaining attention with its Instinct MI300X chips, which are designed for large AI workloads. Some major cloud companies like Microsoft and Meta are testing AMD’s GPUs. However, Advanced Micro Devices does not yet offer a full-stack solution like NVIDIA. It lacks networking hardware and software tools at the same level as NVIDIA owns.

Intel is promoting its Gaudi 3 AI chips as a low-cost option for training and inference. However, Intel’s AI ecosystem is still developing, and its overall AI market share remains small. It also does not offer a complete package that ties chips, software and networking together.

Both companies are making progress, but NVIDIA’s complete system gives it a strong lead.

NVIDIA’s Price Performance, Valuation and Estimates

Shares of NVIDIA have risen around 19.1% year to date against the Zacks Computer and Technology sector’s gain of 7%.

From a valuation standpoint, NVDA trades at a forward price-to-earnings ratio of 33.13, higher than the sector’s average of 27.37.

The Zacks Consensus Estimate for NVIDIA’s fiscal 2026 and 2027 earnings implies a year-over-year increase of approximately 41.8% and 31.9%, respectively. Estimates for fiscal 2026 have remained unchanged over the past 60 days, while those for fiscal 2027 have been revised upward in the past 30 days.

NVIDIA currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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