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

In exactly five weeks, on November 5, voters across the country will weigh and decide which presidential candidate – former President Donald Trump or current Vice President Kamala Harris – will lead our country forward over the next four years.

What happens on Capitol Hill doesn’t always matter to Wall Street. But ultimately elections will determine which president and which political parties will shape financial policy in the next, at least two years. Understanding the economic policy proposals of the two presidential candidates does have significance for the investment community and corporate America.

For former President Donald Trump, his message continues to resemble the one he repeated during his 2020 campaign. He has proposed a handful of new tax breaks for individuals, wants to further cut the corporate tax rate to boost economic growth, is a big supporter of domestic energy production and plans to get tougher on China.

While there are some clear winners in this potential scenario, there are also proven and/or successful stocks that could end up as losers.

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

Nvidia

The first widely held stock that may face difficult headwinds in the event of a Trump victory in five weeks is Wall Street’s leading artificial intelligence (AI) company Nvidia (NVDA 0.03%).

As most investors are probably aware, Nvidia stock has enjoyed a historic rise, with the company benefiting from a record expansion of its operations. In a very short time, 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.

Although the prospect of a corporate tax rate cut could at least temporarily dent Nvidia’s gross margin and allow the company to retain more of its income, there is the potential to limit Nvidia’s upside by another key aspect of Trump’s economic plan.

Specifically, Trump plans to take a tough stance against China, the world’s second-largest economy in terms of gross domestic product. He has proposed a 60% tariff on goods imported into the U.S. from China. Although Nvidia does not import products from China, the world’s second largest economy has always been an important source of revenue for Nvidia. The potential for Trump to trigger a trade war could completely negate China’s desire to buy chips from California-based Nvidia.

Additionally, under the Biden administration, regulators have twice restricted Nvidia’s ability to export its powerful AI GPUs to China in the last two years. I think it’s unlikely that Trump or his administration would ease or lift these restrictions, which limit Nvidia’s revenue potential in a key market.

I would be remiss if I didn’t also mention that every pioneering technology, trend and innovation for 30 years has found its way through an early-stage bubble. Investors constantly overestimate the acceptance and utility of breakthrough innovations, and AI is unlikely to be an exception to this unwritten rule. If the AI ​​bubble bursts under a Trump presidency, no company would feel the sting more than Nvidia.

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

Tesla

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

Tesla has used its first-mover advantages to build itself from the ground up to produce around 2 million electric vehicles per year on a run-rate basis. It was the first electric vehicle company to generate a recurring profit and is seeking to diversify its operations by expanding into energy storage.

Although former President Trump has hinted at giving Tesla CEO Elon Musk a job in his administration if he is re-elected in November, he has also been critical of tax credits and tax incentives for electric vehicles. Although Trump hasn’t specifically said he would eliminate the $7,500 electric vehicle tax credit for new purchases, his statements suggest it’s a real possibility.

Tax credits play an important role in creating a potential price advantage for electric vehicles compared to internal combustion engine vehicles. If this credit goes away, arguably the most compelling competitive advantage for electric vehicles will be lost – especially since electric vehicle charging infrastructure is still somewhat limited.

In addition, Tesla’s reliance on unsustainable revenue sources – particularly interest earned on its cash and regulatory vehicle tax credits – has increased rapidly relative to pre-tax income. In the June quarter, about 66% of Tesla’s pretax profit came from these two sources, with $890 million of the $1.89 billion in pretax profit coming from regulatory credits.

It is also unclear how Trump’s tariff policies will affect domestic and international sales of electric vehicles for U.S.-based companies. Tesla has aggressively reduced the selling price of its electric vehicles (Model 3, S, X and Y) since early 2023 to combat growing competition and increasing inventory. Unfortunately, these price reductions have not prevented inventory levels from rising year-over-year and have hurt the company’s operating margin.

Even if Musk were to take on a role in the Trump administration, Tesla would be a stock that would likely struggle with the former president in the Oval Office.

Apple

The third great stock that could face a tumble if Donald Trump wins in November is Wall Street’s largest company by market cap. Apple (AAPL 2.29%).

Although Apple shares have soared in 2024 on the back of AI ambitions and excitement over the eventual integration 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 transform Apple into a platform company. A subscription-based model should increase operating margins, smooth out the revenue fluctuations that occur during iPhone upgrade cycles, and further strengthen the company’s impressive customer loyalty.

Similar to Nvidia, it could also benefit from a further reduction in the corporate tax rate. Apple has repurchased a market-leading $700.6 billion of common stock since the start of 2013, reducing the number of shares outstanding by 42.2%. A lower corporate tax rate could lead to 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. Because of tariffs and the potential anti-American sentiment generated by a trade war with China, Apple could see its already stagnating growth engine come to a complete halt.

Although buybacks have played a key role in boosting Apple’s earnings per share over the past 11 years, the problems that have blighted Apple’s growth engine cannot be fixed with the market’s leading share buyback program. Even a cut in corporate tax rates won’t be enough to offset the ongoing sales weakness Apple is facing across all of its physical product lines.

While tech stocks and all three major stock indexes thrived under Trump’s first term, I predict Apple will falter if Trump wins in November.