Wedbush: The earnings season for tech stocks has begun, and giants like NVIDIA need to clarify the impact of the "tariff war" on fundamentals

According to the Zhitong Finance APP, top Wall Street investment firm Wedbush recently stated that "AI chip giant" NVIDIA (NVDA.US) and the broader U.S. tech sector, especially the so-called "Magnificent Seven" (which includes NVIDIA, Google, and Apple) that dominate the high market capitalization weights of the Nasdaq and S&P 500 indices, need to provide a clear outlook on the impact of the ongoing tariff war between the U.S. and China on the fundamentals of tech companies, as well as the extent of the impact of the global tariff policies initiated by the Trump administration on company fundamentals.

The new earnings season for U.S. stocks has begun, and in the view of Wedbush's analyst team, NVIDIA and the entire U.S. tech sector need to quickly clarify the impact of "Trump's global tariff policies" on company fundamentals. If tech companies provide an outlook similar to that of "king of chip foundries" Taiwan Semiconductor (TSM.US), which is extremely strong and emphasizes that the impact of tariffs is very limited or almost nonexistent, it could drive the entire U.S. tech sector into a "super rebound curve."

It is understood that Taiwan Semiconductor's earnings report released last Thursday showed a surge in AI computing power demand, with net profit soaring by 60%. More importantly, under the heavy pressure of Trump's global tariffs, Taiwan Semiconductor reaffirmed its strong performance growth data. The company maintains its revenue growth forecast for 2025, expecting this year's growth rate to still reach around 25%, completely in line with the target set in January, with revenue related to artificial intelligence (AI) expected to double.

Regarding tariff-related issues that global investors are focused on, Taiwan Semiconductor stated that it has not observed any changes in customer behavior due to U.S. tariffs, and its optimistic outlook contrasts sharply with global market uncertainties. In particular, Taiwan Semiconductor plans to double its CoWoS advanced packaging capacity, primarily for NVIDIA's AI GPU capacity, indicating that the company is confident that the strong demand for AI chips will continue until early 2026.

"However, we need to be prepared... The economic damage caused by Trump's erratic tariff plans may have already put the U.S. economy on a recessionary track... This could lead to a complete pause in capital expenditures, a halt in hiring plans, concerns about rising prices, and supply chain shocks/disruptions, triggering an unprecedented level of economic growth uncertainty in the U.S. since the COVID-19 period... But this time it is 'self-inflicted' and will still be accompanied by significant market turmoil," wrote the Wedbush analyst team led by senior analyst Daniel Ives in their latest investor report.

Last week, NVIDIA officially disclosed that the U.S. government blocked its sale of the H20 AI chip, which was customized for the Chinese market, before obtaining a license, marking another strategic blow to NVIDIA's fundamentals. NVIDIA expects to incur costs of up to $5.5 billion as a result.

Ives and other analysts added: "NVIDIA's negative news may just be the beginning of future turbulence, but we remain firmly bullish on tech stock trading in the long term, as we focus on the long-term demand surrounding AI and optimistic expectations for future technology roadmaps."The next 3-6 months will be a critical period for the China-U.S. trade war. We believe Wall Street has generally lowered the performance expectations for the U.S. tech sector in 2025 by about 10%, and the quarter ending in June is seen as a 're-deal' in this high-stakes poker game played by the White House... Businesses and consumers may once again find themselves caught in a storm."

NVIDIA CEO Jensen Huang met with key officials and Chinese business leaders in China over the weekend to discuss NVIDIA's market prospects in China and the potential impacts of the trade war. "For NVIDIA, China is a very important market," Huang stated. He also expressed a desire for the tech giant to "continue deep cooperation with China."

Analysts like Ives stated: "In a time of extreme tension in U.S.-China relations, NVIDIA is a key strategic asset for the U.S. and even the Trump administration... The White House will ensure that Jensen Huang and NVIDIA's advanced AI chip supply is restricted."

On Monday morning, NVIDIA's stock price fell nearly 5%, to around $96.7.

The market seems hesitant to "buy the dip" in NVIDIA

Despite NVIDIA's stock price having fallen to the lowest valuation range in the AI development cycle, the subsequent macro events and fundamental risk events have made investors wary of the "buying the dip" strategy. The global AI chip leader is caught in a vortex of geopolitical and industrial cycle overlaps.

Numerically, NVIDIA's 22 times price-to-earnings ratio is significantly discounted compared to its long-term average, and the 24% decline this year is twice that of the Nasdaq 100 index. However, Krishna Chintalapalli, head of technology at Parnassus Investments, warned: "Current valuations may seem reasonable, but they hide complexities." He emphasized that accurately predicting stock price movements requires betting on multiple variables such as tariff trends, Chinese technology policies, and the investment pace of large tech companies, and "the combination of these factors is creating unprecedented uncertainty."

Last week, the U.S. Department of Commerce imposed a ban on NVIDIA's H20 chips to China, directly tearing open a market gap worth billions of dollars. This product line was originally aimed at China's AI computing power demand, but has now become a sword of Damocles hanging over the financial report. Even more unsettling for the market is that this move has intensified concerns that the AI investment cycle may peak earlier, especially against the backdrop of the trade war escalating and casting a shadow over overall economic growth prospects.

Wall Street remains bullish on NVIDIA

In the long term, analysts generally maintain an optimistic outlook. According to data tracked by Bloomberg, nearly 90% of analysts recommend buying NVIDIA stock. NVIDIA's stock price is currently over 60% lower than the average target price set by analysts, indicating that its implied potential return over the next 12 months is at a relatively high level compared to the past few years. Those investors who remain bullish on NVIDIA in the long term view the recent stock price weakness as a good buying opportunity.

Deutsche Bank, UBS, and Piper Sandler have slightly lowered their target prices for NVIDIA in their latest research reports, but still set a target price of at least $135 within the next 12 months, along with the most optimistic rating equivalent to "buy." The latest ratings and target prices compiled by TIPRANKS show that Wall Street's consensus rating for NVIDIA stock is "strong buy," with no "sell" ratings appearingRating; the average target price within 12 months is as high as $170, indicating a potential upside of up to 75%; the highest target price is as high as $200, while the most pessimistic target price is $120—still significantly above the current stock price