The net effect of a second term for President Donald Trump on U.S. tech stocks would likely be minimal, but potentially slightly negative.
Let’s tackle each issue.
Trump would like to cut corporate taxes even further. They’re currently at 21%, but many question if the magnitude of another cut can be as high as that seen in the Tax Cuts and Jobs Act. Corporate taxes cannot fall forever and the government needs revenue.
Plus, big tech companies in the U.S. derive a significant portion of their earnings — and therefore their earnings taxable in the U.S. — from countries outside the U.S. Many big tech companies in the U.S. see 40% to 60% of revenues from their home country. Plus, assuming a relatively balanced party composition of Congress, the full extent of policy is not entirely likely to be implemented.
U.S. big tech companies shouldn’t see much upside to earnings based on a smaller effective tax rate.
China and Trade:
The President reverted to his protectionist policy positioning after the coronavirus outbreak originating in Wuhan, China. Wall Street expects him to maintain that position.
Tariffs kept in place or even ratcheted up means elevated costs for semiconductor sales in the U.S. That’s a secondary concern.
Primarily, Trump’s agenda to halt the tech transfer between U.S. and Chinese tech companies in an effort to protect national security likely means chip makers like Micron (MU) - Get Report and Qualcomm (QCOM) - Get Report would see meaningful amounts of revenue taken out of their valuations, as Huawei would cease to be a customer. Other semiconductor companies see a small portion of their revenues from Huawei.
Trump, in an effort to provide transparency for U.S. investors, may implement policies that would limit the number of Chinese tech companies listing on U.S. stock exchanges. Some of those companies may not have fully complied with U.S. regulatory standards on financial transparency.
This would restrict the supply of U.S. tech companies on the U.S. market and could be marginally supportive of stock prices.
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