Big US tech supply chains hit by current tariffs, services exempt currently but face risks
We see risks to downside for stocks like Apple, Nvidia and Microsoft.
Mentioned: Apple Inc (AAPL), Microsoft Corp (MSFT), Amazon.com Inc (AMZN), Alphabet Inc Class C (GOOG), NVIDIA Corp (NVDA)
On April 2, US President Donald Trump announced wide ranging tariffs, affecting countries across the globe. Technology stocks were hit hard in the aftermath, particularly those with hardware exposures.
Why it matters: Technology hardware supply chains are global and often concentrated in Asia. Increasing the costs of these supply chains will present immediate issues for hardware providers, through lower margins, lower demand, or a combination of both.
- Hardware supply chains are concentrated in Asia, with notable concentrations in China (34% additional tariff rate), Taiwan (32%), South Korea (25%), Japan (24%), Singapore (10%), Malaysia (24%), Thailand (36%), and the Philippines (17%).
- While supply chains are global and have some flexibility, there are few places to hide under the current tariff regime, aside from bringing manufacturing back to the US. We find reshoring highly unlikely in the near term, and even if it did occur, it would be extremely costly and inflationary.
- Under the current executive order, semiconductors are exempt, and only hard goods are being tariffed, which means services are implicitly exempt. Services would cover large swathes of the technology sector, including software, consulting, and IT services.
The bottom line: We are maintaining our fair value estimates and Uncertainty Ratings across most of tech for now but see heightened uncertainty and risks to the downside, depending on how long tariffs remain, if they are watered down, and what retaliations other countries choose.
- Tariffs will hurt hardware supply chains, as such, we see hardware names as the most exposed. Hardware names with cyclical end market exposure are in the worst position, such as autos or industrials.
- While services are exempt currently, we see an increased risk of retaliations from other countries that could specifically try to target services given the US is a net exporter of services, therefore giving this vector more leverage.
