By Adam Clark
Technology stocks are already being trampled in the market rout caused by tariff concerns. If history is any guide, hardware and semiconductor companies could be the first to feel real effects on their businesses, but software won't necessarily be spared.
The most recent example of a shock to demand for technology came during the Covid-19. Spending on information technology fell sharply in the second quarter of 2020 before rebounding.
"Back then, the supply chain was relatively similar, and the data can show you how quickly tech sales by end market can plunge and then recover," wrote Melius Research analyst Ben Reitzes in a research note. "It just doesn't seem that we can see the same level of dip and rebound this time."
Any spending reductions could first hit IT hardware companies such as Dell Technologies, as well as networking companies Cisco and Arista Networks, considering what happened during the financial crises in 2008 and 2020.
"We are already hearing about 20% increases in U.S. prices for x86 servers and PCs and some networking and know that many customers will just walk away from projects at these levels," Reitzes wrote.
At the same time, the Melius analyst backs semiconductor companies Nvidia and Broadcom, seeing them as winners from the continuing trend toward investing on artificial intelligence investment, even as chip makers face the threat of tariffs.
Software won't necessarily be spared because other countries could react to U.S. tariffs with taxes on digital services. However, Microsoft, Amazon.com, Alphabet, and Oracle could all get some relative support for their cloud-computing businesses if higher prices for servers encourage customers to use their computing capacity rather than building their own, he said.
"While revenue and earnings should be more stable than other sectors, the companies could face increased regulatory scrutiny, government spending cuts and some volatility from IT spending on cloud," Reitzes wrote.
Write to Adam Clark at adam.clark@barrons.com
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April 07, 2025 11:42 ET (15:42 GMT)
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