A significant portion of Donald Trump’s campaign has been built on the promise of protectionist – and, in many cases, punitive – tariffs, allegedly targeting ‘foreign adversaries’ but, to an increasing extent, actually aimed at key allies and economic partners.
The latest, arguably strange, choice for a tariff hike has been Taiwan. Specifically, President Trump announced on Monday he is planning to levy additional dues on chips, pharmaceuticals, and steel to foster domestic production.
While the move might bear fruit in the long term, its results are highly dubious in the short term given that Taiwan is to host to a significant portion of the world’s semiconductor industry, and Taiwan Semiconductor Manufacturing (NYSE: TSM) is responsible for more than 50% of the global production.
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Could semiconductor tariffs lead to a Nvidia stock rally?
Still, the tariffs, should they be imposed, could provide a significant short-term boost for the stock price of companies such as Nvidia (NASDAQ: NVDA).
Although the initial reaction is likely to be investor fear, Nvidia is likely to eventually counter the new dues by raising prices. Historically, markets have reacted favorably to price hikes – as best exemplified by the price action of Netflix (NASDAQ: NFLX) shares.
Such a situation could prove especially welcome given that NVDA shares’ have been struggling since Monday, January 27 – albeit they regained significant ground by press time – in the wake of the release of the novel Chinese artificial intelligence (AI) DeepSeek model.
Still, the long-term prospects for Nvidia stock would remain dubious should the tariffs be imposed without significant provisions to allow for a free flow of critical chips.
On the one hand, a price increase for the semiconductor giant’s products could lead to lower demand and, thus, lower revenue.
Furthermore, though TSM has a major foundry on U.S. soil, fully moving production on American shores would be a significant effort, and should Nvidia elect to participate in facilitating a smoother transition, it could also have a major impact on the quarterly financials.
Why Nvidia’s revenue might collapse even without tariffs
Finally, with or without the announced tariffs, Nvidia’s long-term prospects might be somewhat depressed due to DeepSeek.
Despite many voices in the world of finance doubting the Chinese claim, the model was developed with only $6 million and with relatively few advanced chips, the consensus – at least at press time – among the more technical experts appears to be that Chinese engineers and scientists truly achieved a remarkable technological breakthrough.
Should the American AI sector adopt these novel methods, it could significantly reduce the need for numerous advanced semiconductors, again impacting Nvidia’s revenue. Still, as Meta’s (NASDAQ: META) Yann LeCun pointed out, the long-term picture appears optimistic.
Specifically, in LeCun’s opinion, the breakthroughs are more likely to simply accelerate advancements and not genuinely have a negative impact on the sector as the planned infrastructure investments will bear fruit when adoption becomes even more widespread and once the AI models begin tackling increasingly resource-heavy tasks such as video.
Featured image via Shutterstock
