Nvidia’s (NASDAQ:) stock has surged to record highs following news that the Trump administration will grant licenses to resume H20 chip sales to China, potentially recovering up to $15 billion in revenue. While the company trades at a market cap of $4.22 trillion with impressive fundamentals, investors should be cautious about stretched valuations, manufacturing constraints, and the underlying sustainability of AI demand as the stock enters uncharted territory.
Nvidia has once again captured Wall Street’s attention, with shares climbing to new record highs following a surprising policy reversal from the Trump administration.
The chipmaker’s stock closed at $173.00, up 0.95%, with pre-market trading pushing it even higher to $173.81.
This latest surge comes after months of uncertainty surrounding the company’s ability to serve one of its most crucial markets—China—which historically represents a significant portion of Nvidia’s revenue stream.
As the AI chip giant navigates through regulatory complexities and unprecedented demand, investors are left weighing the potential for continued growth against mounting risks that could challenge the company’s astronomical valuation.
Nvidia in China: From Ban to Breakthrough
The roots of Nvidia’s China crisis trace back to April 2025, when the Trump administration unexpectedly banned the company from selling its H20 chips to Chinese customers, citing national security concerns.
This move sent shockwaves through the market, causing Nvidia’s stock to tumble as investors grappled with the implications of losing access to what CEO Jensen Huang estimates is a $50 billion AI market. The ban resulted in immediate financial consequences, with Nvidia reporting $2.5 billion in lost sales during the first quarter and projecting an additional $8 billion in lost revenue for the second quarter.
The policy reversal came as a surprise to many, announced following Jensen Huang’s second visit to Beijing this year and a meeting with Trump at the White House. The Trump administration’s decision to grant licenses for H20 chip sales appears to be strategically motivated, with analysts suggesting it aims to create competitive pressure against Chinese competitors like Huawei.
Wall Street analysts at Stifel, Bernstein, and William Blair now project that Nvidia could recoup between $10-15 billion in revenue from China in the second half of the year, potentially reaching $20 billion for the full 2026 fiscal year.
Market reaction has been overwhelmingly positive, with Stifel analyst Ruben Roy raising his price target to $202 from $180, citing “pent-up demand” and an expected “accelerated cadence of H20 ingestion from China customers.”
However, some analysts remain cautious about the sustainability of these sales, noting that the approval came partly because Huawei’s recent offerings may be superior to the H20, potentially forcing Nvidia to compete on price rather than premium margins.
Nvidia Stock Riding the AI Wave
Nvidia’s current stock performance reflects the market’s continued confidence in the company’s AI dominance, with shares trading at $173.00 and a staggering market capitalization of $4.22 trillion.
The company’s year-to-date return of 28.85% significantly outpaces the S&P 500’s 7.07% gain, while its one-year return of 46.67% dwarfs the index’s 12.69% performance. More remarkably, Nvidia’s three-year return of 999.16% and five-year return of 1,601.42% demonstrate the extraordinary wealth creation the company has delivered to shareholders during the AI revolution.
The company’s financial metrics paint a picture of exceptional profitability and growth. With a trailing P/E ratio of 55.81 and a forward P/E of 38.76, Nvidia trades at a premium that reflects high growth expectations.
The company’s profit margin of 51.69% and return on equity of 115.46% showcase its ability to generate substantial returns from its AI chip business. Revenue of $148.51 billion and net income of $76.77 billion underscore the massive scale at which Nvidia operates, with diluted EPS of $3.10 reflecting strong per-share earnings.
Analyst sentiment remains largely bullish, with the consensus price target of $173.92 essentially matching the current stock price, suggesting fair valuation at current levels. However, price targets range from a low of $100 to a high of $250, indicating significant disagreement among analysts about the stock’s true value.
Recent analyst upgrades following the China news have pushed some targets above $200, but concerns about manufacturing capacity at TSMC and the sustainability of AI demand continue to create uncertainty about the company’s ability to meet these elevated expectations.
Investment Risks and Navigating Uncharted Valuation Territory with NVDA
Despite Nvidia’s impressive fundamentals, several risks warrant careful consideration for investors entering at current levels. The company’s valuation metrics reveal a stock trading at extreme multiples, with a price-to-sales ratio of 28.81 and a price-to-book ratio of 50.32. These ratios suggest that much of the company’s future growth is already priced into the stock, leaving little room for disappointment.
The forward P/E of 38.76, while lower than the trailing P/E, still represents a significant premium that requires sustained high growth rates to justify.
Manufacturing constraints present another significant risk factor. Stifel analyst Ruben Roy has highlighted that Nvidia’s ability to meet demand depends heavily on manufacturing capacity at TSMC, which he describes as “tight.”
This bottleneck could limit the company’s ability to capitalize on the recovered China market and broader AI demand. Additionally, the competitive landscape is evolving rapidly, with companies like AMD (NASDAQ:) gaining market share and Chinese competitors like Huawei developing alternative solutions that could erode Nvidia’s dominance over time.
The sustainability of AI demand represents perhaps the most fundamental risk facing Nvidia investors. Recent developments, including China’s DeepSeek achieving competitive AI performance with older, less expensive chips, have raised questions about whether the massive capital expenditures on cutting-edge AI hardware are necessary.
Reddit discussions among investors reveal growing skepticism about the AI spending boom, with some comparing it to previous technology bubbles. If the AI revolution proves less transformative than expected, or if technological breakthroughs reduce the need for Nvidia’s premium chips, the company’s current valuation could face significant pressure.
The fact that Nvidia’s stock surged $200 billion in market cap on news of $15 billion in potential revenue recovery suggests that market sentiment may be disconnected from fundamental value creation.
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This article was written by Shane Neagle, editor in chief of The Tokenist. To get trade ideas and pre-market insights delivered to your inbox every morning premarket, click here to sign up for Bull Whisper (free), brought to you in partnership with The Tokenist.