Prediction: 3 market-leading stocks that could fall if Donald Trump wins in November

Exactly five weeks from today, on November 5, voters across the country will weigh in and decide which presidential candidate — former President Donald Trump or current Vice President Kamala Harris — will lead our nation forward for the next four years.

What happens on Capitol Hill is not always relevant to Wall Street. But the election ultimately determines which president and political parties will shape fiscal policy for at least the next two years. Understanding the economic policy proposals of the two presidential candidates do what they matter to the investing community and to corporate America.

Former President Trump speaking to reporters. Image Source: Official White House Photo by Andrea Hanks.

For former President Donald Trump, his message remained similar to what he expressed during his 2020 campaign. He has proposed a handful of new personal tax breaks, wants to further cut the corporate tax rate to spur growth economy, is a big promoter of domestic energy production and plans to get tougher on China.

While there are some pretty clear winners of this potential scenario, there are also time-tested and/or high-speed stocks that can end up losers.

What follows are three market-leading stocks that could fall if Donald Trump wins in November.

Nvidia

The first widely held stock that could face some headwinds if Trump wins in five weeks is Wall Street’s main artificial intelligence (AI) company. Nvidia (NVDA 0.03%).

As most investors probably know, Nvidia’s stock has enjoyed an all-time high as the company has benefited from a manual expansion of its operations. In short, Nvidia’s AI graphics processing units (GPUs) have become the undisputed preferred choice for companies running generative AI solutions and building/training large language models.

While the prospect of a lower corporate tax rate could, at least temporarily, weaken Nvidia’s gross margin and allow it to keep more of its income, another key aspect of Trump’s economic plan has the potential to limit Nvidia’s advantage.

Specifically, Trump plans to take a tough stance on China, the world’s second-largest economy by gross domestic product. He proposed a 60% tariff on goods imported into the US from China. Although Nvidia does not import products from China, the global economy no. 2 has consistently been a key sales generator for Nvidia. The potential for Trump to start a trade war could eliminate China’s desire to buy chips from California-based Nvidia altogether.

To add to the above, regulators in the Biden administration have twice limited Nvidia’s ability to export its high-powered AI GPUs to China in the past two years. I would consider it unlikely that Trump or his administration will ease or lift these restrictions, which limit Nvidia’s revenue potential in a key market.

I’d be remiss if I didn’t also mention that every technology, trend, and innovation of the past 30 years has navigated its way through an inception bubble. Investors consistently overestimate the adoption and utility of game-changing innovations, and AI seems unlikely to be the exception to this unwritten rule. If the AI ​​bubble were to burst under a Trump presidency, no company would likely feel the sting more than Nvidia.

Electric vehicle tax credits may be eliminated by Trump. Image source: Tesla.

adze

A second market leader that could fall if Donald Trump wins a second term is the electric vehicle (EV) maker adze (TSLA 0.45%).

Tesla has used its first-mover advantages to build itself from the ground up to produce about 2 million electric vehicles annually at a rolling rate. It became the first electric vehicle company to generate a recurring profit and is trying to diversify its operations by expanding into energy storage.

Although former President Trump has hinted that he would offer Tesla CEO Elon Musk a position in his administration if re-elected in November, he has also criticized electric vehicle tax credits and tax incentives. While Trump has not specifically said he will eliminate the $7,500 electric vehicle tax credit for new purchases, his statements suggest it is a real possibility.

Tax credits play an important role in providing a potential price advantage for electric vehicles compared to internal combustion engine vehicles. If this credit is eliminated, perhaps the most attractive competitive advantage for EVs disappears — especially with EV charging infrastructure still somewhat limited.

To add to the above, Tesla’s reliance on unsustainable sources of income — specifically, cash-earned interest income and regulatory auto tax credits — have grown rapidly as a percentage of pre-tax income. In the quarter ended in June, about 66 percent of Tesla’s pretax income came from those two sources, with $890 million of its $1.89 billion pretax profit coming from regulatory credits.

It is also unclear how Trump’s tariff policy will affect domestic and international sales of electric vehicles for US companies. Tesla has aggressively cut the selling price of its electric vehicles (Model 3, S, X and Y) starting in early 2023 to counter growing competition and rising inventory levels. Unfortunately, these price cuts did not prevent inventory levels from increasing year-over-year and hurt the company’s operating margin.

Even if Musk had a role in the Trump administration, Tesla is a stock that would likely fight the former president back in the Oval Office.

Apple

The third magnificent stock that could be poised to fall if Donald Trump wins in November is Wall Street’s largest company by market capitalization. Apple (AAPL 2.29%).

Although Apple’s stock has soared in 2024 on the back of its AI ambitions and excitement surrounding the eventual incorporation of AI tools into its best-selling iPhone, the company’s Services segment has been the real highlight for years. CEO Tim Cook is overseeing a transformation that will see Apple become a platform company. A subscription-based model should raise its operating margin, smooth sales fluctuations that occur during iPhone upgrade cycles, and further boost the company’s impressive customer loyalty.

Similar to Nvidia, it could also benefit from an additional reduction in the corporate tax rate. Apple has bought back $700.6 billion worth of its common stock since the start of 2013 and reduced its number of shares outstanding by 42.2% in the process. A lower corporate tax rate can encourage even more buybacks.

On the other hand, Apple imports some of its products from China, relies on a significant portion of its iPhone sales from China, and the vast majority of its iPhones (along with Macs and iPads) are assembled in China. Between the tariffs and potential anti-American sentiment from a trade war with China, Apple could see its already stalled growth engine grind to a complete halt.

While buybacks have played a key role in growing Apple’s earnings per share over the past 11 years, what’s hurting Apple’s growth engine can’t be solved with its market-leading share buyback program. Even a cut in corporate tax rates won’t sufficiently offset the persistent sales weakness Apple is facing across its physical product lines.

While tech stocks and all three major stock indexes have thrived during Trump’s first term, my prediction is that Apple will go bust if Trump wins in November.