Big Tech Stocks: Time to Reconsider Financial Imperviousness in the Wake of Trade Wars
Key Takeaways from Morning Brief
* MSFT, AMZN, AAPL, EBAY, and NVDA have historically commanded premium valuations due to:
* Lucrative recurring revenue streams
* Wide moats created by billions in investments
* Superiority in critical business applications
Impact of Trump's Trade War
However, the ongoing trade war with the rest of the world may challenge this perceived financial invincibility.
Amazon (AMZN)
* Despite a large Prime membership base and revenue from AWS, Amazon remains a retailer heavily dependent on shipping goods.
* Two-thirds of Amazon's merchandise costs are sourced from China, exposing it to tariffs.
* Morgan Stanley analyst estimates a potential decline in Amazon's profits due to increased import costs.
eBay (EBAY)
* Similar to Amazon, eBay also faces exposure to China-based sellers, with 11% of revenue coming from China.
* Tariffs could negatively impact eBay's profitability.
Apple (AAPL)
* Majority of Apple's products are manufactured in China.
* A 10% tariff on China could reduce Apple's EPS by 3-4%.
* Uncertainty and increased business costs due to the trade war remains a risk.
Conclusion
The trade war poses a financial risk to big tech companies that have not been adequately priced into their stock valuations. Investors need to reassess the assumption of financial invulnerability and monitor the impact of tariffs on profitability and business operations.
Disclaimer: Opinions expressed are for informational purposes only and should not be construed as investment advice.