Nvidia‘s (NASDAQ: NVDA) share price has skyrocketed more than 800% while Kamala Harris has served as vice president of the United States. That’s a bigger gain than the stock delivered when Donald Trump was in the White House. It’s also larger than the returns generated during any of the four-year terms of Barack Obama and George W. Bush.
Of course, Harris doesn’t set government policies while she is vice president, nor power the Nvidia-buoying AI boom sparked by ChatGPT’s release to the public in 2022. But it will be a different story — for the former — if she defeats Donald Trump in November. Could Nvidia stock soar if Kamala Harris becomes president?
Harris’ key relevant policies
Harris has proposed several major economic policies since becoming the Democratic presidential nominee. She wants to cut taxes for working Americans. The vice president seeks to lower food and grocery costs in part by targeting corporate “price gouging.” Harris proposes strengthening Obamacare. She wants to address the U.S. housing shortage by offering incentives and tax credits.
None of those proposals are very relevant to Nvidia. However, the vice president has put forward some policies that could affect the chipmaker. Of course, presidents have to work with others to get things done, so no campaign promise or policy plan is a guarantee.
Harris wants to raise the corporate tax rate that companies pay from 21% to 28%. This would roll back the tax cuts passed during the Trump administration but still leave the corporate tax rate at a lower level than it has been historically. Additionally, she has proposed quadrupling the tax rate on corporate stock buybacks.
Harris says she plans to offer new tax credits to support “critical industries of the future.” These tax credits would, among other things, help promote building new data centers for artificial intelligence (AI) and “revitalizing America’s semiconductor industry.” She also wants to keep in place the AI executive order signed by President Joe Biden that included safeguards aimed at preventing safety and security issues with AI technology.
How these policies could impact Nvidia
At first glance, you might think increasing the corporate tax rate to 28% could hurt Nvidia quite a bit. However, that’s not necessarily the case. The table below shows how much Nvidia’s effective tax rate has been over the last four years:
|
Fiscal Year |
Effective Tax Rate |
|---|---|
|
2021 |
1.7% |
|
2022 |
1.9% |
|
2023 |
(4.5% tax benefit)* |
|
2024 |
12% |
Data source: Nvidia 10-K filings. The company’s fiscal year ends in late January. *Nvidia received more back from the government as a result of tax benefits than it paid in taxes in 2023.
Maybe Harris’ proposed corporate tax rate increase would negatively affect Nvidia, but over the last four years, the company’s effective tax rate has been much less than the 21% tax rate implemented when Trump was president. As the table above shows, Nvidia has demonstrated its prowess at using the tax code to its advantage to have an effective tax rate that’s much lower than the standard corporate tax rate. It could very well continue to do so in a Harris administration.
Harris’ plans to quadruple the tax rate on stock buybacks could cause Nvidia to change how it allocates capital. The company spent $9.7 billion on share repurchases in its last fiscal year and bought back nearly $14.9 billion of its shares in the first half of the current fiscal year. Nvidia could choose to deploy more money to fund dividends or reinvest in its business instead of repurchasing shares if Harris’ plans take effect.
The bottom line, though, is that significantly higher taxes on stock buybacks probably wouldn’t impact Nvidia’s business much, if at all. And while buybacks can increase the price of existing shares by lowering overall share count, investors could still benefit if the company boosts its dividend payout or grows more rapidly due to investing more in its business.
What about Harris’ proposal to provide tax credits to support the building of AI data centers and the U.S. semiconductor industry? These tax credits might benefit Nvidia to some extent. However, the vice president’s plans don’t include the dollar amounts involved. Without these details, it’s impossible to evaluate how the proposed policy could impact Nvidia.
Could Nvidia stock soar if Harris becomes president?
Let’s return to our initial question: Could Nvidia stock soar if Harris is elected president? Yes, the stock certainly could soar during a Harris administration — but not necessarily because of any specific policies Harris might implement.
Based on what is known at this point, none of Harris’ proposed policies would likely make a huge impact on Nvidia’s business. And that’s assuming she could win enough support in Congress to implement her ideas. Every president faces the challenge of persuading legislators to go along with his or her approach. Sometimes they’re successful, but sometimes they’re not.
Nvidia’s fortunes depend much more on the demand for its GPUs than they do on government policies, regardless of who sits in the Oval Office. I think this demand will remain strong for years to come. If so, chances are that Nvidia stock will soar if Harris becomes president.
However, I wouldn’t bet on the chipmaker’s share price rising as much as it did during her tenure as vice president. It’s a daunting challenge for any company with a market cap approaching $3 trillion to deliver a 9x return in four years.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
Could Nvidia Stock Soar if Kamala Harris Becomes President? was originally published by The Motley Fool
