Nvidia faces $5.5bn charge on chip curbs to China

General market commentary

U.S. equities closed modestly lower on Tuesday, as ongoing tariff developments continued to influence market sentiment. This week, the U.S. administration temporarily paused tariffs on consumer electronics, including smartphones and semiconductors, but indicated that these will soon be added back to a new category of sector-specific tariffs. In response, China halted purchases and deliveries of Boeing jets and aircraft equipment from the U.S. President Trump is also considering a temporary suspension of auto tariffs, which had previously boosted the sector, giving carmakers some time to adjust supply chains. The broader tariff backdrop remains uncertain, keeping volatility elevated, and while there was some positive movement in shares over the past two days, major indices such as the S&P 500 and the Nasdaq remain lower by approximately 8% and 13% respectively for the year.

Despite the negative returns in equities this year, there are some positive developments in terms of valuations. The market's reset has brought valuations back to more compelling levels, with major indices now trading at or below their 10-year historical forward price-to-earnings multiples, potentially setting the stage for stronger long-term returns. The S&P 500's forward multiple is now around 18 times next year's earnings forecast, down from recent highs, while the Nasdaq's multiple has fallen from 30 times to about 21 times. The recent increase in volatility, combined with a more reasonable valuation environment and signs that the worst of the tariff impacts might be behind us, could provide a foundation for equities to stabilise and potentially find support. While the risks remain elevated, there is optimism that the worst-case scenario has already been priced in, and a recession is not necessarily inevitable.

Latest market and economic update

Asian equities mostly fell on Wednesday, pressured by Nvidia's warning about new U.S. chip export controls to China, which hit tech shares hard. Despite stronger-than-expected Chinese GDP data, concerns over the U.S.-China trade war and its impact on future growth dampened market sentiment, especially in Hong Kong and China.

US equity futures dipped overnight, with Dow Jones futures down 0.5%, while S&P 500 and Nasdaq 100 futures fell by 0.9% and 1.5%, respectively, as investors awaited key retail sales data and more earnings reports. Nvidia’s shares dropped over 6% in extended trading due to a $5.5 billion quarterly charge related to exports, contributing to the overall market decline.

European shares rose yesterday, led by a 2.4% gain in Italy, while LVMH's first-quarter sales miss caused a 7.8% drop in its shares and dragged down luxury sector equities. Investors also reacted to U.S. tariff updates, with optimism growing over potential modifications to tariffs, while awaiting the European Central Bank's policy meeting.

The US dollar index fell below the 100 mark on Wednesday, reaching three-year lows as it weakened against major currencies, particularly the euro, which is currently trading at 1.1338. Investors are cautious ahead of Federal Reserve Chair Jerome Powell’s speech and ongoing trade tensions, leading to broad dollar losses.

The yield on the U.S. 10-year Treasury note held steady at 4.33% as investors awaited Federal Reserve Chair Jerome Powell’s speech for clues on the Fed's response to slowing growth and inflation risks. The bond market remained cautious amid rising trade tensions and uncertainty over future tariff policies.

Oil prices edged lower on Wednesday amid uncertainty over U.S. tariff policies, with concerns about the impact of the U.S.-China trade war on economic growth and energy demand. The International Energy Agency has downgraded its global oil demand growth forecast for 2025, citing slow growth due to escalating tariffs and rising U.S. production, which has weighed on market sentiment.

China’s economy grew 5.4% year-on-year in Q1 2025, surpassing expectations, largely due to continued government stimulus measures. However, quarter-on-quarter growth of 1.2% missed estimates, as the escalating U.S.-China trade war began to impact the economy, with China facing rising tariffs and increasing pressure on exports.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Nvidia expects up to $5.5 billion in charges for Q1 2025 due to new U.S. export restrictions on its H20 AI chips to China, prompting a 6.3% drop in its shares. Despite strong demand from firms like ByteDance, Alibaba, and Tencent, the chips now require an export licence under U.S. regulations, which are set to remain indefinitely.

Tesla has suspended plans to import components from China for its Cybercab and Semi electric truck due to U.S. tariffs, potentially disrupting its growth ambitions in autonomous vehicles. The move follows President Trump's decision to hike tariffs on China to 145%, adding to the company's existing challenges, including declining sales and competition from Chinese producers.

Citigroup beat Wall Street expectations for Q1 profit, driven by a 23% increase in equity trading revenue, though executives warned that U.S. tariff policies cloud the economic outlook. Despite this, the bank raised its provisions for loan losses and announced share buybacks while making progress on regulatory compliance.

Bank of America exceeded profit estimates in the first quarter, driven by strong trading revenue and interest income, though investment banking fees declined due to market uncertainty. While concerns over tariffs persist, the bank remains optimistic about its net interest income forecast and future balance sheet growth.

United Airlines lowered its profit forecast for the current quarter and warned of risks to its full-year outlook due to economic uncertainties, including the possibility of a U.S. recession. Despite stable forward bookings, the airline plans to cut domestic capacity by 4% in the September quarter and is adjusting its approach to meet weakening demand and protect margins.

Interactive Brokers' first-quarter earnings slightly surpassed expectations, with a 36% jump in commission revenue and a 3% increase in net interest income. Despite a resilient performance, shares fell almost 10% in extended trading, and the company declared a higher quarterly dividend and a four-for-one share split.

Applied Materials has acquired a 9% stake in BE Semiconductor Industries, becoming its largest shareholder and signalling a strategic investment in hybrid bonding technology. The move aligns with Applied's existing equipment and supports the development of advanced semiconductor packaging, with no plans to increase the stake or seek a board seat.

Rio Tinto reported its lowest first-quarter iron ore shipments since 2019, as cyclones disrupted its Pilbara operations, causing a reduction in its 2025 shipment forecast to the lower end of its target range. The company also warned that further weather-related losses could impact production, while its copper output rose by 16% year-on-year but fell 8% quarter-on-quarter.

Bank of America reiterated its Buy rating on Microsoft, highlighting its strong position in the AI cycle, although it reduced its price target to $480 from $510 due to macroeconomic uncertainty. The bank expects Microsoft's Q3 FY24 revenue to rise by 10.3% year-on-year, driven by solid growth in Azure and its data analytics offering, Fabric, despite potential macroeconomic headwinds.

Goldman Sachs downgraded its outlook on LVMH following a disappointing first-quarter performance, particularly in the Fashion & Leather Goods division, which saw a 5% decline. The bank lowered its forecasts by 7-8% and reduced the price target to €610, citing slower recovery and ongoing sales pressure from reduced Chinese spending in Japan and foreign exchange challenges.

Upcoming data and events

Today, key economic events include the release of U.S. retail sales data and crude oil inventories, with a speech from the Federal Reserve Chair. Companies reporting earnings include ASML Holdings, Prologis, Abbott Laboratories, U.S. Bancorp, and The Travelers Companies.

For more information visit https://cc.com.mt/. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning investments or investment decisions, or tax or legal advice.