Tech Stocks in the Crosshairs of Trade War
Summary
The trade war between the U.S. and other countries poses significant risks to big-cap tech stocks. These companies, while often valued at substantial premiums due to their lucrative revenue streams, moats, and in-demand products, may face challenges in the current economic climate.
Impact on Amazon (AMZN)
Despite its robust Prime membership base and AWS revenue, Amazon remains exposed to the trade war. Morgan Stanley estimates that two-thirds of Amazon's non-grocery merchandise originates from China. An extended tariff war could erode Amazon's profit margins, a factor not adequately priced into its stock valuation of 35x forward earnings.
Impact on eBay (EBAY)
eBay, a smaller e-commerce competitor, is also vulnerable to the trade war. Approximately 11% of its revenue is derived from China-based sellers, exposing the company to potential tariff-related challenges.
Impact on Apple (AAPL)
The majority of Apple's products are manufactured in China. Analysts estimate that 90% of its production capacity is located there. A 10% tariff on Chinese goods could reduce Apple's earnings per share by 3-4%, a risk not yet factored into its stock price.
Consequences of Trade War
The trade war has introduced uncertainty and increased business costs, even if reciprocal tariffs do not fully materialize. Apollo Global Management's chief economist highlights the potential negative consequences for big tech companies.
Conclusion
Investors should carefully assess the risks posed by the trade war to big-cap tech stocks. While these companies have historically commanded premiums due to their strong business models, the current geopolitical climate may challenge their valuations.