The Contention between Apple and Nvidia: Predicting the Superiority of Their AI Stocks under Trump's Imminent Tariffs
With President-elect Trump promising tariffs, investors are bracing for potential impacts. The stock market didn't fare well when Trump announced tariffs earlier, leading to a trade war with China. However, investors are now more knowledgeable and may be better prepared for upcoming tariffs.
Two tech giants, Apple and Nvidia, could be significantly affected by Trump's looming tariffs. Apple's reliance on China for a third of its iPhone sales and nearly 20% of its revenue in 2023 makes it a vulnerable target. If tariffs are imposed, the price of an iPhone 16 could increase by $240 due to increased import costs. Analysts are divided on whether Apple will receive an exemption, as it did in Trump's first term.
Investors may be less concerned about the impact of tariffs on Nvidia, but the company still faces challenges. Nvidia's AI chips, while famous, are manufactured by Taiwan Semiconductor. Taiwanese officials have expressed concerns about the impact of tariffs on their manufacturing, and some companies are reportedly stockpiling chips to avoid higher prices.
Which company will perform better in this situation? Nvidia's high gross margins, pricing power, and demand for its new Blackwell chips may give it an advantage. Apple may still fare well, but its reliance on China's struggling economy and the potential for indirect harm from tariffs pose risks.
Apple's gross profits will likely face pressure due to tariffs, according to UBS. This could lead to a decrease in Apple's earnings per share by about 3%. Apple may choose to transfer prices, but at the risk of decreased consumer demand, or absorb the burden of tariffs by reducing profits.
Nvidia, already dealing with US export restrictions on high-end chips to China, faces further challenges due to tariffs. The company's shares suffered a 3.7% drop on Friday and a 15.8% decrease over the week due to market concerns.
Both tech giants, along with other companies, could be forced to restructure their supply chains in response to the prolonged nature of the tariffs. Companies may choose to diversify their manufacturing bases to regions like Southeast Asia or India to reduce their dependence on China, leading to billions of dollars in lost investment for China and complications in global supply chains.
- Despite the potential impacts of tariffs, some investors might view this situation as an opportunity for profitable investing in companies that can navigate these challenges effectively.
- Nvidia's finance department will need to consider the effects of tariffs on its supply chain, especially considering the US export restrictions and Taiwan Semiconductor's concerns.
- Knowledgeable investors might consider diversifying their portfolios to include companies less reliant on China, such as tech companies with significant operations outside of China, in light of the tariff uncertainty.
- If Trump's proposed tariffs are implemented, the percentile of tech companies affected will vary, with some, like Nvidia, potentially facing less significant impacts due to their manufacturing locations and product demand.
