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U.S. tech companies can finally breathe easy, at least for the time being. U.S. Treasury Secretary Steve Mnuchin on Sunday said that the U.S.-China trade conflict has been put on hold.
This certainly is good news for U.S. tech companies, particularly chipmakers, which have been reeling under pressure since the two countries sparked fears of a trade war by imposing tariffs and counter tariffs on imports from the two countries.
U.S. tech companies generate an estimated more than $100 billion in revenues from China annually. Understandably, the tech sector stands to suffer the most, as the trade war has increasingly focused on technology and intellectual property rights.
However, both countries are now initiating talks and making efforts to pull back from an undesired trade war. Given this scenario U.S. chipmakers stand to gain the most. So, it makes good sense to invest in semiconductor stocks.
Sigh of Relief for Tech Companies
President Donald Trump in late March announced that the United States would be imposing tariffs on Chinese imports worth $150 billion for alleged violation of intellectual property rights. Consequently, China too announced retaliatory tariffs.
However, both countries since then have cooled down on their stance and are now negotiating to avoid a much-feared trade war. On May 20, Mnuchin said, "We are putting the trade war on hold."
This certainly will bring a sigh of relief for U.S. tech companies, as tech companies stand to suffer the most if trade war takes place. U.S. tech companies generate an estimated $100-$150 billion in revenues annually from China, with Apple Inc. (NASDAQ: AAPL ) and Intel Corporation (NASDAQ: INTC ) alone generating $105.5 billion from China.
Other companies like Microsoft Corporation (NASDAQ: MSFT ), Qualcomm, Inc. (NASDAQ: QCOM ) and Broadcom Inc. (NASDAQ: AVGO ) too make a significant portion of their revenues from China.
U.S. tech companies have been reeling under fears of a trade war for quite some time now, which saw their shares taking a hit. However, now that both the United States and China are working on a possible solution to avoid a trade war, it definitely will boost the morale of tech companies.
Biggest Gainers if Trade War is Averted
Tech companies undoubtedly will be one of the biggest gainers if a trade war is avoided. From large caps to medium and small caps, a number of U.S. tech companies have operations in China. Naturally, companies who have their assembly plants in China stand to gain the most if the trade negotiations fall into place.
Also, the Commerce Department last month imposed a ban on American companies from selling components to Chinese company ZTE for seven years, accusing it of misleading U.S. regulators after it settled charges last year of violating sanctions against North Korea and Iran.
While this made the company announce that it was ceasing operations, the ban can also have an adverse affect on American chipmakers, as an export ban would definitely hurt the revenues of U.S. chipmakers. However, with Trump tweeting on Sunday that he is working with Chinese president Xi Jinping to get ZTE back into business, U.S. chipmakers have ample reasons to party.
It goes without saying that after suffering over the last couple of months as a result of huge selloffs owing to fears of a trade war, U.S. chip stocks will stand to gain from a mutual agreement between Trump and Xi Jinping. While we wait for an amicable solution through negotiations, let'sadd tech stocks for quick gains.
Now, picking winning stocks may be difficult. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.
NVIDIA Corporation (NASDAQ: NVDA ) is the worldwide leader in graphics processors and media communications devices. The NVIDIA Tesla accelerated computing platform gives modern data centers the power to accelerate both artificial intelligence and high-performance computing workloads.
The company has expected earnings growth of 60.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 12.1% over the last 30 days. The stock sports a Zacks Rank #1 (Strong Buy).
Texas Instruments Incorporated (NASDAQ: TXN ) is a global semiconductor design and manufacturing company that develops analog ICs and embedded processors.
Texas Instruments sports a Zacks Rank #1. The company has expected earnings growth of 26.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 9.3% over the last 30 days.
KLA-Tencor Corp (NASDAQ: KLAC ) was formed through the merger of KLA Instruments (KLA) and Tencor Instruments (Tencor), two long-time leaders in the semiconductor equipment and yield management software system industry.
KLA-Tencorhas a Zacks Rank #1. The company has expected earnings growth of 33.7.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.8% over the last 30 days.
Lam Research Corporation (NASDAQ: LRCX ) enables its customers to shape the future of technology by providing market-leading equipment and services for semiconductor wafer processing.
Lam Research has a Zacks Rank #1. The company has expected earnings growth of 75.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 4.7% over the last 60 days.
Micron Technology, Inc. (NASDAQ: MU ) is one of the world's leading providers of advanced semiconductor solutions.
Micron Technology has a Zacks Rank #2 (Buy). The company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.5% over the last 30 days.
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