Could Nvidia Stock Rise If Kamala Harris Becomes President?

Nvidia‘S (NASDAQ: NVDA) the stock price increased by over 800% while Kamala Harris served as Vice President of the United States. That’s a bigger gain than the stock saw when Donald Trump was in the White House. It is also greater than the returns generated during either of the four-year terms of Barack Obama and George W. Bush.

Of course, Harris isn’t setting government policy while she’s vice president, nor is she driving the Nvidia-fueled artificial intelligence boom sparked by ChatGPT’s public release in 2022. But it’ll be a different story – for the former – if she defeats Donald Trump in November. Could Nvidia Stock Rise If Kamala Harris Becomes President?

Kamala Harris. Official White House photo by Lawrence Jackson.

Harris’s Key Relevant Principles

Harris has proposed several major economic policies since becoming the Democratic presidential nominee. He wants to cut taxes for working Americans. The vice president is trying to lower food and grocery costs, in part by cracking down on corporate “price gouging.” Harris proposes strengthening Obamacare. He wants to solve the U.S. housing shortage by offering incentives and tax breaks.

None of these proposals are particularly important for Nvidia. However, the vice president outlined some rules that could impact the chipmaker. Of course, presidents must work with others to get things done, so no campaign promise or policy plan is a guarantee.

Harris wants to increase the corporate tax rate paid by companies from 21% to 28%. This would reverse the tax cuts enacted during the Trump administration but would still leave the corporate tax rate lower than in the past. She also proposed a four-fold increase in the tax rate on the buyback of companies’ own shares.

Harris says he plans to offer new tax credits to support “critical industries of the future.” These tax breaks would help promote the construction of new artificial intelligence (AI) data centers and “revitalize the U.S. semiconductor industry,” among other things. He also wants to uphold the AI ​​executive order signed by President Joe Biden, which included safeguards to prevent safety and security issues with AI technology.

How these policies might impact Nvidia

At first glance, you might think that increasing the corporate tax rate to 28% could seriously hurt Nvidia. However, this is not necessarily the case. The table below shows what Nvidia’s effective tax rate has been over the last four years:

Data source: Nvidia 10-K filings. The company’s financial year ends at the end of January. *Nvidia received more tax benefits from the government than it paid in taxes in 2023.

Perhaps Harris’ proposed corporate tax increase would have a negative impact on Nvidia, but over the past four years the company’s effective tax rate has been significantly lower than the 21% tax rate used under Trump. As the table above shows, Nvidia has demonstrated its ability to use the tax code to its advantage to achieve an effective tax rate that is significantly lower than the standard corporate tax rate. This could very well continue under Harris.

Harris’ plans to quadruple the tax rate on share buybacks could prompt Nvidia to change how it allocates capital. The company spent $9.7 billion on stock repurchases in the last fiscal year and repurchased nearly $14.9 billion in the first half of the current fiscal year. Nvidia could use more money to fund dividends or reinvest in its business rather than buy back stock if Harris’ plans come to fruition.

The bottom line, however, is that significantly higher taxes on share repurchases likely wouldn’t have much, if any, impact on Nvidia’s business. And while buybacks can increase the price of existing shares by reducing the total number of shares outstanding, investors can still benefit if the company increases its dividend payments or achieves faster growth by investing more in its business.

What about Harris’ proposal to provide tax credits to support the construction of AI data centers and the U.S. semiconductor industry? These tax breaks could benefit Nvidia to some extent. However, the vice president’s plans do not include dollar amounts. Without these details, it is impossible to assess how the proposed policy may affect Nvidia.

Could Nvidia stock surge if Harris becomes president?

Let’s go back to our initial question: Could Nvidia stock surge if Harris is elected president? Yes, stocks could certainly rise under Harris – but not necessarily because of any specific policy Harris could implement.

Based on what is currently known, none of Harris’s proposed policies are likely to have a major impact on Nvidia’s business. And that’s assuming she manages to gain enough support in Congress to implement her ideas. Every president faces the challenge of convincing lawmakers to agree with his approach. Sometimes they are successful, but sometimes they are not.

Nvidia’s fortunes depend much more on demand for its GPUs than on government policy, regardless of who sits in the Oval Office. I think this demand will remain high for many years. If so, chances are Nvidia stock will be will increase if Harris becomes president.

However, I wouldn’t bet on the chipmaker’s stock price rising as much as it did during her tenure as vice president. For any company with a market capitalization approaching $3 trillion, achieving a 9x return in four years is a difficult challenge.

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Keith Speights has no position in any of the companies mentioned. The Motley Fool covers and recommends Nvidia. The Motley Fool has a disclosure policy.