As the Trump tariffs kick in, makers of computers, consumer electronics and other tech products face the prospect of "demand destruction" curbing sales. Demand destruction is the hot phrase now among Wall Street analysts covering Apple, Nvidia and other tech hardware stocks.
Demand destruction is the second punch of a double whammy after tariffs increased the cost of selling imported products in the U.S. Manufacturers are likely to pass along those costs to enterprise customers and consumers in higher prices.
Stepped-up tariffs implemented by President Donald Trump took effect Wednesday. They launched a trade war with China, which has announced reciprocal tariffs.
However, midday on Wednesday, Trump announced a 90-day pause on reciprocal tariffs for most countries, except for China. At the same time, he raised U.S. tariffs on China goods to 125%.
"These tariffs have already created significant enterprise demand destruction out of the gates as capex and new projects are being halted across the U.S.," Wedbush Securities analyst Daniel Ives said in a client note early Wednesday. He added that it will continue "until this chaotic situation is better understood by CEOs and business leaders around the world."
Amid market upheaval caused by Trump tariffs, Apple and Nvidia are still long-term stocks to own given their installed base, technology leadership and growth opportunities, Ives said.
On the stock market today, Apple stock jumped 15.3% to close at 198.85. AI chip leader Nvidia saw its shares surge 18.7% to 114.33.
Demand Destruction Hurting Chipmakers
The Trump tariffs also are impacting semiconductor stocks because of "demand destruction of end products that contain semis," Bernstein analyst Stacy Rasgon said in a client note Wednesday.
The Trump tariffs create the risk of a significant slowdown in information technology spending and demand destruction, Raj Joshi, senior vice president at Moody's Investors Service, said in a report Tuesday.
"If new levies persist, the effect will be to destroy demand vs. pushing out purchases," he said. Joshi noted that the U.S. accounts for nearly a third of global hardware technology sales.
Also, the mix of tech products that the U.S. buys skews to high-end hardware, such as premium smartphones and high-performance computers, Joshi said.
Trump Tariffs Leading To Retail Price Hikes
The Trump tariffs will force price increases on a host of products, including smartphones, personal computers, video game consoles and automobiles, analysts say.
"U.S. product prices might have to be increased by as much as 30% for some of the more tariff-sensitive companies (Apple, given China manufacturing) under our coverage to limit the annual EPS impact to about 10% or less," Evercore ISI analyst Amit Daryanani. He made the comments in a report Wednesday.
But like other analysts, Daryanani highlighted the potential for demand destruction from price hikes.
Elsewhere on Wednesday, Jefferies analyst Edison Lee cut his price target on Apple stock to 167.88 from 202.33. He also lowered his revenue and earnings forecasts for the company, citing the impact of the Trump tariffs and global recession risks.
However, Lee upgraded Apple stock to hold from underperform, or sell, given its recent valuation decline.
One Trump administration goal from the tariffs is to encourage more manufacturing in the U.S. But some analysts scoff at the notion that Apple iPhones and other electronics could be produced cost effectively in the U.S. any time soon.
On Tuesday, White House press secretary Karoline Leavitt said Trump believes iPhones can be built in the U.S. "He believes we have the labor, we have the workforce, we have the resources to do it," she said.
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