Nvidia shares dive as trade war fears drive tech correction

The NASDAQ is nearing technical correction, with the so-called Magnificent Seven stocks – those at the centre of the AI boom – the biggest weight on the index. Naturally, Nvidia is leading the losses, with the 30% decline from its record highs driven by fundamental factors, weaker market sentiment, and idiosyncratic market dynamics.

Tariffs threaten Nvidia’s sales growth and profit margins

Fundamentally speaking, Nvidia’s results have been stellar. However, unlike 2023 and the first half of 2024, the markets have gotten better at estimating the company’s growth trajectory, meaning that upside earnings surprises have been fewer in recent quarters. As one would expect, topline growth is moderating as the law of diminishing returns adds inertia to sales growth, with the upside risks to the company’s performance and therefore share price decreasing. Certain headwinds to growth are developing, too. Firstly, the global economic backdrop is weakening, with the Trump administration’s policies worsening the outlook: trade wars are hitting business confidence, with Nvidia, at a micro level, confronting the prospect of higher costs, lower margins, and weaker profits. Secondly, there are fears that Nvidia’s major customers, the so-called “hyperscalers”, have over invested in AI technology and will pull back on future chip purchases. Nvidia is particularly vulnerable to trade wars because higher costs will hit the company across several layers of the supply chain, from raw materials, to critical inputs, and the final product.

Trade uncertainty lifts volatility, hurts market sentiment

From a sentiment standpoint, Nvidia is a victim to the weaker risk appetite in global markets due to policy uncertainty created by the Trump administration and the higher risk of a global economic slowdown. The difficulty in pricing-in the impact of unclear US trade – and to a lesser extent foreign and fiscal – policies, is raising market volatility and reducing the appeal of equities. Given it has been one of, if not the cornerstone of the “AI boom”, it’s natural that a reversal in investor attitudes from quite “greedy” to quite “fearful” would result in Nvidia underperforming the market on this sell-off. Momentum has simply reversed.

Investors rotate out of US tech into European and Asian stocks

There are idiosyncratic market dynamics at play currently too, which blend sentiment, fundamentals and broader investor positioning and asset allocation decisions. Tech stocks, especially Nvidia, were very richly valued and arguably “priced to perfection”. This dynamic meant the company’s stock was prone to shocks, especially as momentum slowed as earnings beats became smaller and smaller. The emergence of growth risks from US trade policy and the rise of DeepSeek in China, which has helped improve sentiment towards hitherto depressed Chinese tech companies, has prompted flows out of US tech stocks and into other, “cheaper” equities in Asia, and to a lesser extent, Europe.

Nvidia’s technicals show strong long-term uptrend

Given these drivers, what’s the outlook for Nvidia’s shares? It depends on market sentiment, the impact of US trade policy on Nvidia’s costs and bottom line, the ability of AI hyperscalers to monetise their investments, and the company’s ability to continue to drive revenue growth against this backdrop. Turning to a look at the charts, Nvidia remains in a long-term uptrend. Framing things within a long-term perspective, the company’s prospects remain strong: while the size and growth potential of the AI market is uncertain, Nvidia chips are at its core and will see ongoing demand. In the short-term, weekly charts show a stock with greater downside momentum at risk of a deeper pullback. Two noteworthy support levels sit around $97 and $90, with upward sloping trendline support around the mid to high $80s.

^{(Source: Trading View)}
(Past performance is not a reliable indicator of future results)