Investors piled into technology stocks over the past couple of years on optimism that artificial intelligence (AI) could become the next great revolution. Unsurprisingly, tech stocks led gains in the Nasdaq Composite (^IXIC +0.35%), but they also drove the Dow Jones Industrial Average (^DJI 0.56%) and the S&P 500 (^GSPC 0.11%) higher. Nvidia (NVDA +2.57%) and Palantir Technologies posted the top performances in those two indexes, respectively, last year.
Today, though, the situation isn't looking as spectacular for tech stocks, and Wedbush analyst Dan Ives has been one to highlight that. President Trump last week announced his full plan for import taxes, and Ives called the situation an "economic Armageddon" that could be painful for U.S. tech players.
Trump launched a general tax of 10% on all imports to the U.S. -- except those covered by a North American trade agreement -- and set out various additional tax levels that apply to specific countries. The problem is that tech companies generally produce their products outside the U.S., so the import taxes will weigh on their costs.
Considering this new challenge and Ives' words, should you really buy tech stocks now? Let's take a closer look.
image source: Getty Images.
An extra expense for tech giants
As mentioned, Trump's tariffs vary according to country -- and levels are high in key countries where tech giants have much of their production.
For example, Nvidia produces its AI chips in Taiwan through Taiwan Semiconductor Manufacturing. Trump has imposed a 32% duty on goods coming from that country, and Nvidia will be responsible for paying the fee.
Another example: Apple's (AAPL +0.00%) production of its famous iPhone and other products spans several countries including China, India, and Vietnam. Trump has set tariffs on imports from those countries at 54%, 27%, and 46%, respectively. Apple will face these rates as it imports its products into the U.S.
NASDAQ: AAPL
Key Data Points
Ives said in a post on X last week that Trump's move will set the U.S. tech world back by a decade. "The cost structure of the U.S. tech world would make it impossible to compete with China, and this would be a lotto ticket for the China tech landscape," Ives wrote.
The idea is that technology companies, either paying the import taxes or the higher cost of production in the U.S., would be forced to charge more for their products -- making them less competitive versus non-U.S. rivals. All of this clearly would weigh on earnings, and as Ives says, allow companies from other countries such as China to steamroll past American tech players.
A Nasdaq bear market
These concerns explain why tech stocks have plunged in recent days, even driving the Nasdaq into a bear market, falling more than 20% from its most recent peak.
Now, let's return to our question: Considering this situation, should you really buy tech stocks right now?
Of course, there is a risk that the tariff plan will move forward completely unchanged and U.S. tech companies will suffer -- but it doesn't seem likely the government and the tech players themselves would let a worst-case scenario unfold. It's reasonable to expect policy negotiations at a certain point and/or moves by U.S. tech companies to shield themselves from the worst. Major, well-established leaders -- such as Nvidia and Apple, just to name two -- saw this coming, as Trump earlier spoke of imposing tariffs and even launched tariffs during his first term.
Though this time around the duties represent a more significant challenge for tech companies, these players are prepared for a certain degree of headwinds -- and this may limit some of the impact in the near term as a longer-term solution is found.
Your comfort with risk
So, what does this mean for you as an investor? Your decisions should be linked to your comfort with risk. If you have a cautious investment style, you may pick up a couple of the strongest technology leaders today -- but be sure to at the same time diversify across "safer" stocks such as Dividend Kings and companies that aren't as exposed to import tariffs. This will serve as a buffer if tech stocks experience a long period of difficulty.
If you're an aggressive growth investor, you might want to load up on tech stocks right now, as many are trading at dirt cheap valuations. This could be a rare opportunity to gain access to certain players at such levels. Nvidia, for instance, is trading for only 20x forward earnings estimates -- down from 50x earlier this year. Still, even in the best of times, it's never a good idea to go all in on one theme, so make this part of a diversified strategy that includes stocks in other sectors, index funds, and/or other assets.
And no matter what your investment style, remember to hold on for the long term -- at least five years. Though the situation may look grim at the moment and Ives makes extremely valid points, many of today's tech giants still have the products, leadership, and financial strength to offer patient investors major gains over the long run.
