TLDR
- Nvidia (NVDA) stock gained 2.8% premarket Wednesday after falling 1.4% Tuesday, while Trump’s new tariffs, including 104% on Chinese goods, took effect.
- Cathie Wood’s ARK Innovation ETF purchased 343,657 Nvidia shares Monday and Tuesday, after selling out of its position in early 2023.
- Nvidia CEO Jensen Huang suggests AI investments may increase during a recession as companies focus on growth areas.
- Nvidia’s balance sheet shows roughly equal cash and debt positions ($8.5-8.6 billion), with $60.9 billion in free cash flow over the past year.
- Semiconductors have been excluded from Trump’s tariff plans so far, but escalating US-China tensions create potential risks for Nvidia.
Nvidia shares climbed 2.8% in premarket trading Wednesday, reaching $98.88 after dropping 1.4% during Tuesday’s regular session. The movement comes as President Trump’s sweeping tariffs, including a 104% duty on Chinese goods, took effect Wednesday.
The chip giant’s stock has lost 28% of its value so far this year. This decline has created what some investors see as a buying opportunity.
Cathie Wood’s flagship ARK Innovation exchange-traded fund purchased 343,657 Nvidia shares across Monday and Tuesday trading sessions. This marks a return to the stock for Wood, whose fund had completely exited its Nvidia position between November 2022 and January 2023.
That earlier sell-off meant Wood’s fund missed most of the spectacular gains that eventually propelled Nvidia to a $3 trillion market valuation.
Tariff Concerns and Market Reaction
While semiconductors have so far been excluded from Trump’s tariff plans, Nvidia still faces risk from escalating tensions between the United States and China. Beijing has threatened retaliation, raising concerns it might target American companies with significant Chinese business operations.
Other major semiconductor stocks also showed strength in Wednesday’s premarket trading. Advanced Micro Devices (AMD) gained 0.9%, while Broadcom (AVGO) rose 1.9%.
The chipmaker’s movements largely tracked the broader market’s reaction to the new tariffs. Investors continue watching for signs of how the trade situation might evolve.
Recession-Proof AI Business?
During Nvidia’s GPU Technology Conference (GTC) last month, CEO Jensen Huang made a statement that suggests the company’s AI business might actually benefit during economic downturns.
When asked about a potential recession’s impact on AI demand at the GTC Financial Analyst Q&A, Huang responded: “If there’s a recession, I think that the companies that are working on AI are going to shift even more investment toward AI because it’s the fastest growing [area]. Every CEO will know to shift toward what is growing.”
This perspective suggests that Nvidia’s AI-enabling products – which account for at least 87% of the company’s total revenue – might see increased demand even in challenging economic environments.
Huang’s reasoning seems to be that AI investments have become essential for many companies to remain competitive. Cutting back on AI capabilities, even temporarily, could allow competitors to gain an advantage that might be difficult to overcome.
As Palantir CEO Alex Karp put it, “The world will be divided between AI haves and have-nots.”
Financial Strength
Even if AI demand were to weaken during an economic downturn, Nvidia appears well-positioned to weather difficult conditions.
The company’s balance sheet shows roughly equal amounts of cash and long-term debt, both around $8.5-$8.6 billion. This balanced position contrasts with competitors like Broadcom and Intel, which carry substantially more debt than cash.
More importantly, Nvidia generates enormous free cash flow. Over the past year, the company produced $60.9 billion in free cash flow, giving it tremendous financial flexibility.
This cash-generating ability means Nvidia could easily pay down its debt if needed. However, maintaining a strategic cash reserve provides more options for future growth investments.
By comparison, some competitors face more challenging financial situations. Intel reported negative free cash flow of $15.7 billion over the past year, nearly double its cash on hand.
Nvidia’s solid financial foundation provides a cushion against potential market volatility or economic uncertainty. This strength gives the company flexibility to continue investing in research and development regardless of short-term market conditions.
The company’s chips remain the preferred choice for training artificial intelligence models, a market position that has fueled its extraordinary growth in recent years.
Despite the recent stock price decline, Nvidia’s long-term growth trajectory appears intact as AI adoption continues accelerating across various industries.
The combination of market leadership in AI chips, strong cash flow, and a healthy balance sheet suggests Nvidia is positioned to navigate both current trade tensions and potential economic challenges.
Whether the stock’s recent rebound marks the beginning of a recovery or merely a temporary bounce remains to be seen as investors continue assessing the impact of trade policies and overall market conditions.
