The votes have been counted, and it's official: President-elect Donald Trump has managed a feat that hasn't been accomplished in more than 130 years by winning nonconsecutive presidential terms. After securing a comfortable majority of electoral votes, Trump will now be sworn in as the 47th President - and the focus on Wall Street has quickly shifted toward Trump's campaign policies and the potential impact on markets. While investors are broadly cheering what's expected to be a pro-business agenda, tariffs are emerging as a key point of concern.
Trump has proposed universal tariffs of 10%-20% across goods from all countries, with a 60% tariff on all goods from China. It's this latter point that could be crucial for some American companies, especially tech giants with sizeable exposure to the world's second-largest economy. According to brokerage firm Bernstein, here are three tech stocks with varying degrees of vulnerability to potential Trump tariffs.
#1. Apple
Cupertino-based behemoth Apple (AAPL) has gone far beyond the realm of being a mere tech company. Co-founded by the legendary Steve Jobs and now helmed by Tim Cook, Apple has become a consumer brand synonymous with aspirational devices such as the iPhone, MacBook, and Apple Watch, among others, and has been a part of our cultural zeitgeist for years. This has resulted in the company commanding a gargantuan market cap of $3.43 trillion.
Apple stock is up 17.8% on a YTD basis, and offers a dividend yield of 0.44%.
Amid the company's existing struggles in China, Trump's election could be another point of concern. With one-fifth of the company's revenues generated from China, Bernstein analyst Toni Sacconaghi said, "For example, if Apple did not raise prices and volumes were unchanged, proposed Trump tariffs could negatively impact company gross profits by an estimated 13% and EPS by $1.44 (or 19%)."
Already, Apple's recent performance in China highlights its challenges in maintaining a foothold in the competitive and price-sensitive market. The slight year-over-year decline in Greater China sales to $15.03 billion for the quarter, and a 7.7% drop in annual revenue for the region, underscore this struggle. Additionally, Apple’s market share in China, which ranged from 15-17% between 2021 and 2023, has been trending downward in 2024, capturing only 16%, 14%, and 15.6% of the market across the first three quarters, reflecting competitive pressures from local brands.
One primary factor in Apple's market share erosion is Chinese consumers' increasing price sensitivity. Apple's premium devices, such as the iPhone 16 Pro and Pro Max, are priced significantly higher than Huawei’s Mate 60 Pro and Pro+, which offer advanced features at a lower cost. With price premiums of 15%-40% over competing high-end smartphones, Apple’s offerings may appear less attractive to price-conscious Chinese buyers.
Moreover, Huawei has seen a resurgence in consumer demand, particularly for its Pura 70, which sold over 6.5 million units due to its advanced camera and AI features. Huawei's comeback has been significant, especially after previously losing ground due to U.S. sanctions, and it has leveraged its understanding of local consumer preferences to gain traction. Meanwhile, on the lower end, brands like Vivo and Xiaomi continue to capture budget-conscious consumers with affordable models, providing a balanced ecosystem for a variety of spending power levels.
Apple's path forward in China may require a recalibrated approach to pricing or further localization of features that directly resonate with Chinese consumers. The brand’s premium positioning has historically been a strength, but with local competitors now achieving similar technological benchmarks at lower price points, Apple’s strategy in the Chinese market could benefit from addressing the evolving balance between perceived value and cost.
Chinese headwinds aside, Apple remains in robust financial health. Apple reported net sales of $94.9 billion for the latest quarter, an increase of 6.1% from the previous year, while earnings of $0.97 per share were down 33.6% from the year-ago period. Key revenue segments of iPhone ($46.2 billion,+5.5% YoY), Mac ($7.7 billion,+1.3% YoY) and Services ($24.9 billion,+12% YoY), all reported growth from the previous year.
The company's cash pile stood at about $30 billion, much higher than its short-term debt levels of $10.9 billion.
Analysts have an average rating of “Moderate Buy” for AAPL stock, with a mean target price of $241.05. This denotes an upside potential of about 6.2% from current levels. Out of 33 analysts covering the stock, 18 have a “Strong Buy” rating, 4 have a “Moderate Buy” rating, 9 have a “Hold” rating, and 2 have a “Strong Sell” rating.
#2. Dell
Another tech major facing concerns due to Trump's proposed China tariffs is Dell Technologies (DELL), a recent reentry to the S&P 500 Index ($SPX). Founded in 1984 by Michael Dell as a college student, Dell provides technology solutions, products, and services worldwide, with a broad focus on personal computers, enterprise solutions and cloud solutions. Its market cap currently stands at $96.8 billion.
DELL stock has been a stark outperformer in 2024, soaring 75.5% on a YTD basis. Notably, the stock also offers a dividend yield of 1.28%.
However, Bernstein cautions that Dell’s dependence on China for its supply chain poses substantial risks, especially as geopolitical tensions and trade policies fluctuate. With key components like printed circuit boards, casings, and a significant share of assembly operations based in China, any tariffs on Chinese imports could directly impact Dell’s production costs. As a major player in China’s computer market, Dell's position could be especially vulnerable should additional tariffs or trade barriers come into play.
A proposed tariff, like the one suggested by former President Trump, could lead to increased costs for Dell. These additional expenses may be challenging to offset without raising prices, potentially hurting Dell’s competitive pricing and squeezing its margins. Additionally, given that Lenovo (LNVGY) and HP (HPE) —Dell's primary competitors—are similarly entangled in China’s supply ecosystem, any industry-wide cost increases could also shift demand patterns if consumers become sensitive to price hikes.
To mitigate these risks, Dell might need to explore further diversification of its manufacturing and supply chain outside China. This could include expanding operations in regions like Vietnam, India, or other countries that offer favorable production costs, although this shift would require time and significant capital.
In the meantime, Dell's numbers for the second quarter were impressive, with both revenue and earnings surpassing estimates. Dell's net revenues for the quarter came in at $25 billion, up 9% from the previous year, with earnings growing by the same rate to $1.89 per share. Notably, this marked the 10th consecutive quarterly earnings beat from the company.
DELL closed the quarter with a cash balance of $4.7 billion, and manageable short-term debt levels of $6.7 billion.
Further, Dell’s AI data center servers sales are booming, giving cause for optimism. With particular focus on its Infrastructure Solutions Group (ISG), the segment aims to find growth catalysts from data storage to AI servers to cloud services. Notably, the AI segment within ISG has an 18% CAGR TAM potential until 2027, primarily driven by AI services over hardware.
Analysts have a consensus rating of “Strong Buy” for DELL stock, with a mean target price of $147.79, which denotes an upside potential of roughly 10.1% from current levels. Out of 19 analysts covering the stock, 14 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, and 3 have a “Hold” rating.
#3. IBM
Finally, we come to International Business Machines Corporation (IBM), more popularly known as IBM, which Bernstein believes will be the least affected among these three, with only a 2% estimated EPS hit.
Founded way back in 1911, IBM operates across several areas, including cloud computing, AI, quantum computing, and consulting services. Known for its innovations in the mainframe and enterprise computing markets, IBM has pivoted in recent years towards high-growth areas, especially focusing on hybrid cloud and AI.
Valued at a market cap of about $197.5 billion, IBM stock is up 30.7% on a YTD basis. Further, the stock also offers a dividend yield of 3.13%.
IBM's dependence on China, especially in terms of its supply chain, has been an area of focus in 2024. China’s advanced industrial network supports a substantial portion of IBM’s components and finished products, essential to their hardware and infrastructure businesses. Even with broader industry moves toward "de-risking" through diversification, IBM continues to rely on Chinese manufacturing due to China’s established production efficiency, robust supply chain ecosystem, and specialized talent base, which remain unmatched by many alternative regions.
Current geopolitical tensions, particularly U.S.-China trade policy shifts with the proposed Trump tariffs, compound these dependencies by creating complexities for IBM’s supply chain logistics and potentially impacting profit margins.
IBM posted a mixed set of numbers for the third quarter, with revenues missing estimates, but earnings surpassing expectations. Total revenues inched up by 1.5% from the prior year to $14.9 billion, with the key software segment reporting revenues of $6.5 billion (+9.7% YoY). Earnings moved higher by 4.55% in the same period to $2.30, outpacing the consensus estimate of $2.23. Further, this marked the 12th consecutive quarter that IBM beat bottom-line estimates.
The company's cash balance stood at $13.2 billion, which was much higher than its short-term debt levels of $1.6 billion.
Supported by its strong balance sheet, IBM is making significant strides in the AI space with a clear focus on enterprise solutions. To overcome challenges related to data privacy that hinder widespread AI adoption, the company’s WatsonX AI platform and the Granite family of models offer promising solutions. IBM Consulting further enhances its AI initiatives by integrating services with a library of role-based AI assistants, allowing for enterprise-level customization.
Analysts have deemed the stock a “Hold,” with a mean target price of $218.47, which indicates only modest upside potential from current levels. Out of 17 analysts in coverage, 4 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, 10 have a “Hold,” and 2 have a “Strong Sell.”
