[NEW YORK] There’s virtually nowhere to hide for many US technology companies under President Donald Trump’s new tariff regime, the harshest in a century.
After Thursday’s (Apr 3) slump wiped US$1.4 trillion in market capitalisation from the Nasdaq 100 Stock Index, the gauge is down 16 per cent in the past six weeks. The Magnificent Seven even more, at 20 per cent. Chipmakers are in free fall. And there is little sign the pain will end anytime soon, as seen by Friday’s 2.7 per cent tumble in the Nasdaq 100 as China retaliated.
China and Taiwan, the global hubs for chip and high-tech manufacturing, got hit with levies of 54 per cent and 32 per cent, respectively. Nascent production bases like Vietnam and India are staring at taxes of at least 26 per cent. On Friday, China said it will impose a 34 per cent tariff on all imports from the US starting on Apr 10.
All of this represents a disastrous setup for companies like Apple, Nvidia and Broadcom, US technology stalwarts that source hardware components and assembly labour from South-east Asia – and use it to make their intellectual property worth trillions. For years, they have woven intricate supply chains that have delivered billions in profits and soaring share prices. It’s a system that can’t be unwound quickly, which means these companies are faced with a difficult choice: hike prices at a time when consumers are stretched thin or absorb costs and watch profits dwindle.
“This is really a worst-case scenario for tech, and I don’t think we’ve seen the end of the selling, since they will continue to suffer until we get more clarity or a change in policy,” said Paul Stanley, chief investment officer at Granite Bay Wealth Management.
Investors reacted swiftly, sending Apple shares tumbling 9.3 per cent on Thursday after Trump announced his plan. The drop was the biggest for the iPhone maker since March 2020, erasing more than US$310 billion from the company’s market value. A Bloomberg index that tracks the so-called Magnificent Seven stocks sank 6.7 per cent.
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On Friday, Apple fell an additional 3.8 per cent while the Magnificent Seven index fell 3.4 per cent.
An index of chip related companies dropped nearly 10 per cent on Thursday with Micron Technology and Microchip Technology each falling more than 16 per cent. Broadcom sank 11 per cent and Nvidia 7.8 per cent. Amazon.com, whose e-commerce business sells many products sourced from overseas, fell 9 per cent.
The Philadelphia Stock Exchange Semiconductor Index fell an additional 3.2 per cent on Friday.
Software makers, which have more limited exposure to tariffs, fared much better on Thursday. Microsoft and Workday, for example, outperformed the S&P 500 with declines of 3 per cent or less.
Tariffs are the latest headache for a tech trade that was minting money just a few months ago. From the end of 2022 to a February peak, the Nasdaq 100 more than doubled, trouncing the broader S&P 500. Since closing at a record on Feb 19, however, the tech-heavy benchmark has fallen 16 per cent and underperformed the S&P 500 by more than four percentage points. Traders have been taking profits and rotating into more defensive sectors amid fears of a recession and concerns about a potential pullback in spending on artificial intelligence infrastructure.
Wall Street analysts have been befuddled by Trump’s vision of bringing manufacturing operations back to the US, something that would be extremely costly and take years if not decades to accomplish.
Apple, for example, might need three years and US$30 billion to move just 10 per cent of its supply chain from Asia to the US, according to estimates from Wedbush analyst Dan Ives. He said such a move would cause “major disruption” and be a “non-starter” considering that the price of iPhones produced in the US would increase dramatically.
Not everyone is bearish. Jason Britton, chief investment officer at Reflection Asset Management, was a buyer on Thursday even though he’s bracing for more volatility ahead.
“There are significant pockets of opportunity being created,” Britton said. “I’m deploying cash in the names I liked yesterday. If your investment horizon is longer than 12 months, for companies that were strong businesses yesterday, you should be buying them today.” BLOOMBERG
