Things were looking extremely difficult for technology companies just a few weeks ago. President Donald Trump announced tariffs on imports from countries around the world -- and an especially high tariff of 145% on imports from China. The move could have been disastrous for tech stocks in two ways: Higher prices in general would reduce demand for their products and services, and the higher prices on their imported parts and finished goods would increase their costs.
Wedbush analyst Dan Ives even called the scenario "Armageddon" for technology companies. But, luckily for these players and for investors, the situation has greatly improved. Since Trump's first announcement, he followed up by temporarily exempting electronics from tariffs. That was a first win for the industry. Then, just last week, the U.S. and China reached an initial trade agreement, dropping the level on imports from China to 30%.
Now, Ives says the bull case is "back on the table" for tech stocks such as Apple (AAPL -0.07%), Microsoft, and Palantir Technologies. Let's take a closer look at the situation and consider whether now is a good time to get in on these growth players.
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The U.S. and China trade agreement
First, let's consider the recent agreement between the U.S. and China. The two countries, involved in a mounting trade war that included mutual tariffs of more than 100%, concluded initial discussions with a deal that involves a 10% import tax on the U.S. and a total tariff of 30% on China. This deal is in place for 90 days while the U.S. and China continue discussions, but it's reason to be optimistic about what's ahead.
Meanwhile, considering the level of this tariff, it's reasonable to expect any future tariff specifically for electronics to land at a manageable level, too -- and this would make it possible for these tech giants to continue manufacturing abroad, a key to their current cost and pricing structure.
In a Bloomberg interview last week, Ives said that for Apple, which was preparing to shift U.S. iPhone production to India, the news could "slow down significantly that shift." This is positive for the smartphone giant that now makes about 90% of its iPhones in China -- even if the company goes ahead with the move, it can do so more slowly, making the transition less of a weight on near-term costs.
Ives says this is a "game changer"
And for the tech industry as a whole, Ives said, the U.S.-China deal was a "game changer" and looking at "AI revolution names from Palantir to Microsoft, this now puts that key bull case back on the table."
Apple isn't the only company to benefit, as Ives says. Any company that manufactures in China, thanks to the new tariff agreement, can continue without seeing an extreme increase in costs. And the benefit extends to all tech stocks -- even those without a strong dependence on China. That's because the trade deal as it stands won't lead to a significant increase in the prices of imports -- the result is less of a weight on consumers' wallets and companies' budgets.
This means customers of tech companies may continue to spend. This is very good news for companies like Palantir and Microsoft, which depend on companies investing in their software and services. And now, as the AI boom continues, represents a time that could be particularly prosperous for such companies -- they're seeing tremendous growth and investors have worried that high tariff levels could halt the positive momentum.
Palantir reported a double-digit revenue increase in the recent quarter and has likened demand to "a ravenous whirlwind." Microsoft posted double-digit gains in revenue, operating income, and net income and spoke of strong ongoing demand from AI customers.
Are tech stocks a buy?
So, considering the U.S.-China trade deal, should you buy tech stocks now? It's true that these players aren't as cheap as they were a few weeks ago after they tumbled on tariff concerns. And of course, it's important to look at each stock on a case-by-case basis. Some tech stocks don't make good investments right now, while others are screaming buys.
But, many tech leaders -- such as the ones I've mentioned here -- even at higher valuations compared with a few weeks ago still make solid buys. This is because, over time, companies such as Apple, Palantir, and Microsoft are well positioned to grow revenue further and excel in the AI space. Will more gains come this year? Possibly, as Ives has said.
What's important, though, is that each of these quality companies has the financial strength, innovation, and products and services that should drive long-term growth. So, regardless of their performance in the short term, these stocks could help your portfolio score a major win over time.
