NVIDIA (NVDA 160.36, -8.46, -5.0%) is down 5.0%, as semiconductor stocks face selling pressure amid an escalation in the trade war with China. Today's loss, which comes ahead of Thursday's release of the company's Q1 earnings report, has NVIDIA trading at a two-month low.
China's Ministry of Finance announced earlier today that $60 bln worth of imports from the United States will be subject to a tariff rate of as much as 25.0%. The move was made in response to Friday's increase of U.S. tariffs, and it represents an escalation in the ongoing trade war.
Given the recent deterioration in trade talks between the U.S. and China, the market is now worried that tariffs will not only stay in place for longer, but that another round of duties could be imposed. It was reported this morning that U.S. Trade Representative Robert Lighthizer was asked by President Trump to prepare a 25.0% tariff on all the remaining imports from China.
Furthermore, there is a growing concern that a continued escalation in the trade war could prompt the U.S. government to declare products from NVIDIA and competitor AMD (AMD 26.36, -1.60, -5.7%) mission-critical hardware due to their wide array of applications. Such a declaration could block the company from selling its products in China. During the last fiscal year, nearly 25.0% of NVIDIA's revenue came from China and Hong Kong.
Besides trade-related concerns, shares of NVIDIA have been weighed down by uncertainty surrounding the company's recent operating performance. This uncertainty has kept the stock closer to its low from late December (124.46) than its high from October (292.76), even though the broader PHLX Semiconductor Index hit a fresh record high in late April.
When NVIDIA reported Q4 results in February, it issued cautious guidance for Q1 and noted it expects FY20 revenue to be flat or slightly down on a yr/yr basis. The company guided for Q1 sales between $2.156 bln and $2.244 bln with gross margin expected within 50 basis points of 59.0%.
While the market will focus on headline results, investors will also be interested to hear if there has been an improvement in sales of the company's newest line of video cards based on Turing architecture. NVIDIA launched its RTX series of video cards in late 2018, but demand has been underwhelming, due in part to significantly higher selling prices.
Over the last few months, NVIDIA released a few mid-range Turing-based video cards in hopes of finding the same demand sweet spot it did when it launched the GTX1000 line in May 2016.
Like other semiconductor names, NVIDIA is feeling the heat of an escalation in the trade war with China, while Thursday's release of the company's Q1 results is leading to added caution.