Tech stocks exposed themselves to vulnerabilities of the trade conflict on Jun 27 whenPresident Donald Trump announced plans of a clampdown on foreign investments in American technology companies. Previously, the President chalked out plans reported earlier to stop firms with at least 25% Chinese ownership from taking over U.S. tech companies.
Though the latest decision was perceived by investors as a little softer stance, it could not save tech stocks from slumping. Technology Select Sector SPDR ETF (XLK - Free Report) was down 1.4% on Jun 27.
Investors should note that the relationship between the United States and China has been in the spotlight since Trump’s election win in November 2016, as evident from the volley of verbal attacks made by Trump against China’s trade practices.
Why China So Important to U.S. Tech Sector
The Chinese economy, the second largest in the world, but has been expanding at a much quicker clip than the United States. This emerging economy has aggressively been investing in U.S. companies, gradually emerging as a key origin of capital for the U.S. market.
So, when both the United States and China enact a 25% tariff on each other’s $34 billion worth of goods from Jul 6, the investing world will definitely be bothered. And the tariff scenario may worsen as White House plans to enact tariffs on an extra $200 billion worth of Chinese goods, if China keeps retaliating.
The pain for the tech sector is more because“semiconductor and semiconductor equipment companies have the highest revenue exposure to China at 52%” (per Morgan Stanley equity strategists). Tech Hardware & Equipment companies have about 14% sales exposure to China.
Chipmaker Qualcomm (QCOM - Free Report) has 65% revenue exposure to China and Nvidia’s (NVDA - Free Report) sales exposure to China is 56%, per Goldman Sachs. Apart from these, some other tech and semiconductor companies, which have sales exposure to China in the range of 22% to 55%, include the likes of Intel (INTC - Free Report) , Micron Technology (MU - Free Report) and Applied Materials (AMAT - Free Report) . This clearly explains why the mood is especially somber in the semiconductor space. So, VanEck Vectors Semiconductor ETF (SMH - Free Report) was down more than 2.4% on Jun 27.
Time for Small-Cap Tech Stocks?
While these large-cap stocks are bearing high chances of getting hurt by the possible trade war, investors can take a look at small-cap technology stocks, which are more domestically focused and thus less vulnerable to souring trade relations.
The following tech stocks have a market cap of less than $1 billion.
Xplore Technologies Corp (XPLR - Free Report)
This Zacks Rank #1 (Strong Buy) company is in the business of developing integrating and marketing mobile wireless Tablet PC computing systems. It belongs to a top-ranked Zacks Industry (top 8%). You can see the complete list of today’s Zacks #1 Rank stocks here.
Upland Software Inc. (UPLD - Free Report)
This Zacks Rank #1 company is a provider of cloud-based Enterprise Work Management software. It hails from a top-ranked Zacks Industry (top 35%).
Super Micro Computer Inc. (SMCI - Free Report)
This Zacks Rank #1 company manufactures and sells energy-efficient, application optimized server solutions based on the x86 architecture. It hails from a top-ranked Zacks Industry (top 8%).
Electro Scientific Industries Inc. (ESIO - Free Report)
This Zacks Rank #2 (Buy) company manufactures products used around the world in electronics manufacturing. It belongs to a top-ranked Zacks Industry (top 42%).
Immersion Corporation (IMMR - Free Report)
This Zacks Rank #1 company develops hardware and software technologies. It belongs to a top-ranked Zacks Industry (top 25%).
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