According to the Zhitong Finance APP, CITIC Securities released a research report stating that with signs of a phased easing in the tariff drama of the Trump administration, it is judged that the most difficult time for the US stock market may have passed. The baseline scenario is viewed as a soft landing for the US economy, and it is expected that under this scenario, the average performance of US technology sector companies will be revised down by 0% to 10% for the year. Coupled with the currently reasonable valuation levels, a cautiously optimistic view is taken on the investment opportunities in the US technology sector, with sector preferences in the following order: semiconductors, internet, software, and hardware.
The main points from CITIC Securities are as follows:
Market Adjustment: A tariff drama dominated by human error.
On April 9, following US President Trump’s announcement to postpone the implementation of reciprocal tariffs on most countries for 90 days, the US stock market experienced a significant rebound after a recent continuous decline, with the Nasdaq index rising by 12%. Due to the series of unpredictable operations by the Trump administration regarding tariffs, from the peak earlier in the year to April 8, the Nasdaq index accumulated a decline of 24%, officially entering a technical bear market. During this period, the cumulative decline of US technology-related indices was basically close to that during the trade friction in 2018. Similar to the characteristics seen at the bottom of previous bear markets, relatively cheap valuation levels, low bullish positions, and policy shifts contributed to the significant rebound in the US stock market on April 9. However, historical experience also tells us that for the market to emerge from a trough and stabilize, it still fundamentally requires marginal improvements in the underlying economy. This is also the issue that investors in US technology stocks are most eager to analyze clearly.
<img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/90b2ab4b1109c367450eadb930a1303a.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/90b2ab4b1109c367450eadb930a1303a.jpg"/><img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/e4713492a75439f147e01f95f4340a80.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/e4713492a75439f147e01f95f4340a80.jpg"/><img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/47d9556f8401bc9396f586d4fb3a3ef1.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/47d9556f8401bc9396f586d4fb3a3ef1.jpg"/><img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/82beb566c69587ccd79c0d866e989f9f.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/82beb566c69587ccd79c0d866e989f9f.jpg"/><img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/9e76fa2e18c463c988c20878ea067f55.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/9e76fa2e18c463c988c20878ea067f55.jpg"/>
Tariff Impact: Direct and indirect pathways.
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Direct impact: Hardware such as mobile phones and PCs. Currently, IT hardware products entering the US are mainly produced and assembled outside the US. The most significant impact is seen in mobile phones and PCs, whose production and assembly lines are primarily concentrated in Asia
Taking Apple as an example, mobile phone sales in the United States account for about 30% of its global sales. If we calculate based on a tariff of around 30% (equivalent tariff + baseline tariff), and assume Apple adopts two extreme ways to absorb the tariff cost: a global price increase of 6%, or the company bearing a profit decline of around 17%. The calculations indicate that tariffs will have a significant impact on the short-term performance of Apple and related companies.
</li>
<li>
Indirect impact: Reducing overall market demand and causing supply chain disruptions, corresponding to the internet, software, semiconductors, etc. The internet and software are relatively less affected directly by tariffs, and currently, the Trump administration has not introduced tariff policies targeting semiconductors, so these three sectors are exempt from direct tariff impacts. However, the increase in trade costs and global supply chain disruptions caused by tariffs will affect overall market demand, thereby impacting companies' online advertising spending, IT expenditures, and end consumer demand.
</li>
</ol>
Scenario Analysis: The farce quickly calms down, with limited economic damage as the baseline scenario.
In this so-called &#34;coward&#34; game, the complexity of the game far exceeds the scope of understanding and analysis. Based on the current public information, the final outcome can be simply divided into two possible scenarios:
<ol>
<li>Baseline scenario: The farce calms down in a short time, with relatively limited damage to the fundamentals. For the Trump administration, the optimal strategy is to achieve its goals within a very short time window and minimize the impact and disruption to the economy. The longer it takes, the greater the backlash pressure it faces from the economic and financial sectors. Currently, the hard data of the U.S. economy still shows resilience, while soft data shows obvious signs of weakening. However, historical experience indicates that there is no necessary logical correspondence between expectations and actual data. It is expected that a soft landing for the U.S. economy will still be a high-probability event, and the performance of U.S. tech companies will be relatively less affected, likely mainly impacting the second-quarter performance. At the same time, it is expected that under the baseline scenario, the average downward revision of the annual performance of U.S. tech companies will be 0% to 10%.</li>
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<img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/b6bb94b990ab0a04442c5a1037472aaf.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/b6bb94b990ab0a04442c5a1037472aaf.jpg"/><img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/50a89547b04b6edc9174453c4b74e0e8.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/50a89547b04b6edc9174453c4b74e0e8.jpg"/>
<ol>
<li>Low probability: A tug-of-war continues, and the U.S. economy falls into recession. Currently, the baseline tariffs are still in effect, and there are still many uncertainties in trade negotiations between the U.S. and other countries/regions. Coupled with the currently tight liquidity in the financial markets, the market risks have not been completely alleviated. If the Trump administration continues to carry out a series of incomprehensible operations, it is still possible for the U.S. economy to enter a recession.</li>
</ol>
<img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/ad4b8b65cf1ba1bc95720d07644d0d1e.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/ad4b8b65cf1ba1bc95720d07644d0d1e.jpg"/>
Investment Outlook: Semiconductors, Internet, Software, Hardware.
Positive progress in trade negotiations, as well as clarity on the extent of damage to corporate fundamentals during earnings season, are core variables determining market trends in the short term. Under the baseline scenario, even considering the risk of downward revisions to future performance expectations, current valuations already provide good protection. The investment recommendation under the baseline scenario is to be actively prudent, with sector preference ranking as follows: 1) Semiconductors, AI (one of the most certain directions), memory chips &amp; analog chips (cyclical recovery), semiconductor equipment; 2) Internet, leading tech giants, as well as advertising platforms and fintech platform companies; 3) Software SaaS, supported by a low base, reasonable valuation levels, and AI catalysis, with a preference for data management and application software + AI in the foundational software field, as well as high-growth directions in information security (Identity, data security &amp; backup, etc.); 4) Hardware, with a priority on network equipment, AI servers, etc.
<img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/5b24658b4a209262594ac28157f33680.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/5b24658b4a209262594ac28157f33680.jpg"/><img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/01fdc69c5f99a3a4520d39d23943209b.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/01fdc69c5f99a3a4520d39d23943209b.jpg"/>
Risk Factors:
Risks of escalating tariff drama; uncertainty risks related to the Trump administration's style of governance; risks of AI core technology development falling short of expectations; ongoing tightening of policy regulation in the tech sector; risks of global macroeconomic recovery falling short of expectations; risks of macroeconomic fluctuations leading to lower-than-expected IT spending (especially AI spending) by European and American companies; risks of corporate data breaches and information security; and risks of intensified industry competition, etc

CITIC Securities released a research report stating that the most difficult period for the US stock market may have passed, and it is expected that the annual performance of technology sector companies will be revised down by 0% to 10%. Against the backdrop of easing tariff policies under the Trump administration, the market has rebounded, with the Nasdaq index rising by 12%. CITIC Securities holds a cautiously optimistic attitude towards investments in the technology sector, recommending a priority order of semiconductors, internet, software, and hardware. The direct and indirect impact of tariffs on IT hardware is significant, especially for products such as mobile phones and PCs

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CITIC Securities: The most difficult times in the U.S. stock market may have passed, cautiously optimistic about current investment opportunities in the technology sector