By Rolfe Winkler and Dan Gallagher
Tech stocks were pummeled Thursday following President Trump's earlier tariff announcement, a sign of how vulnerable the sector is to a possible recession as well as to higher prices on everything from consumer goods to hardware.
The six tech companies with trillion-dollar market capitalizations (Apple, Nvidia, Microsoft, Amazon, Alphabet and Meta Platforms) lost a combined $985 billion in stock market value today.
"We were all holding out hope that it's bluster and a negotiation tactic," said Tomasz Tunguz, a general partner at venture capital firm Theory Ventures, speaking about President Trump's Wednesday announcement. "For all the countries on that list yesterday, a lot of people were stunned."
Some tech companies like Apple would be hit by steep cost increases because they rely on international supply chains. Many of the inexpensive products consumers find on Amazon will get pricier because they are sourced from China.
Meta could see a big hit to its advertising business as companies across the globe pull back on ad budgets.
Chips aren't facing new tariffs, but often they are inserted into electronics that are, so it will be hard for Nvidia or Broadcom to escape the pain.
One port in the storm may be software. Microsoft outperformed other tech companies Thursday. Software isn't a product where tariffs can be easily applied, since it can be sold domestically wherever it is used. And software companies don't have international supply chains to worry about, just people writing code.
Some tech stocks are vulnerable to a bigger selloff simply because they're expensive. The Tech Sector SPDR ETF trades at 33 times trailing 12-month earnings, compared with 24 times for the S&P 500 SPDR ETF, according to FactSet.
Investors often bid up tech stocks during bull markets because they are excited about future growth. When optimism turns to pessimism or greater uncertainty about the trajectory of earnings growth, share price premiums can quickly evaporate. Fewer people want to speculate on future growth when the near-term outlook is dire.
General excitement over AI had pushed up a range of tech stocks.
"If you're bullish on AI, a short-term downward market move like this is a long-term gift," said Jeff Richards, a managing partner at venture firm Notable Capital.
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(END) Dow Jones Newswires
April 03, 2025 16:59 ET (20:59 GMT)
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