AI and ad tech are safe from Trump's tariffs so far
Big Tech's earnings season is in full swing. And while we've still got a few weeks left before Nvidia reports its results May 28, one major pattern is emerging. AI and advertising are dodging the impact of President Trump's tariffs, while consumer-focused companies like Apple take the hit.
Google parent Alphabet (GOOG, GOOGL), Amazon (AMZN), Meta (META), and Microsoft (MSFT) all scored solid results. Alphabet raised its dividend and authorized an additional $70 billion in stock buybacks; Meta provided strong guidance for the current quarter; and Microsoft pointed to healthy cloud sales. Amazon offered a lighter than anticipated outlook on its operating income for its second quarter, but even that didn't shake analysts.
'[Management] noted limited direct impact from tariffs on the Q2 profit guide, driven by pre-buying inventory and limited [third-party] seller impact so far (sellers not yet raising prices),' BofA Securities analyst Justin Post wrote in an investor note following Amazon's earnings.
And while Apple also saw better-than-anticipated EPS and revenue in its latest quarter, the company warned that it will take a $900 million charge in its current quarter. CEO Tim Cook also noted the outlook for the June quarter remains murky.
'There remains plenty of uncertainty on the tariff cost impact beyond the June [quarter], but we are assuming a 30% China tariff and 10% tariff for the [rest of the world], with Apple able to partially mitigate these tariffs, resulting in a 45.3% gross margin in the Sept [quarter],' Morgan Stanley's Erik Woodring wrote in an analyst note.
It's a sign that Big Tech's cloud and AI giants are navigating the current economic environment with relative ease, while Apple is forced to pull as many levers as possible to avoid a damaging blow amid the Trump administration's ever-changing tariff policy.
And it won't get any easier until Washington provides some long-term clarity.
One of the main concerns going into Big Tech's earnings season was whether advertising and AI spending would keep pace in the face of tariff fears. And, luckily for the likes of Alphabet, Amazon, Meta, and Microsoft, they did just that.
Alphabet's advertising revenue topped expectations, and while cloud revenue was a hair shy of Wall Street's estimates, analysts weren't concerned, as the company, like its rivals, is contending with more AI demand than it can handle.
'And given that revenues are correlated with the timing of deployment of new capacity, we could see variability in Cloud revenue growth rates, depending on capacity deployment each quarter,' Alphabet CFO Anat Ashkenazi explained during the company's earnings call. 'We expect relatively higher capacity deployment towards the end of 2025.'
Chief business officer Philipp Schindler also called out Alphabet's strong ad performance in Q1, and while he cautioned that it's too soon to comment on Q2 and that the company will see minor headwinds related to changes to the de minimis exemption, he said Alphabet has plenty of experience working through uncertain times. The de minimis exemption exempted shipments of $800 or less coming into the US from tariffs.
Amazon also saw strong sales in Q1. And while CEO Andy Jassy explained that it's difficult to tell where tariffs will go from here, he said that the company's AWS service continues to grow meaningfully relative to its already massive size despite AI capacity constraints.
Microsoft's cloud business grew 20% year over year, with AI contributing 16 points of growth to the company's Azure business. And so far, the company isn't seeing any major impact due to tariffs.
'Through April, demand signals across our commercial businesses as well as in LinkedIn, Gaming, and Search have remained consistent,' Microsoft CFO Amy Hood said during the company's earnings call.
Meta, like Alphabet, also said its outlook looks solid outside of the de minimis exemption change.
'While Meta will not be immune should there be a macro slowdown, we believe it will perform better on a relative basis than less scaled digital advertising platforms,' William Blair analyst Ralph Schackart wrote in a note following Meta's earnings.
Apple's tariff problems are far more complicated thanks to its large presence in China. While the company is moving production for US-bound iPhones to India, it could still face duties on accessories made in other locations, including Vietnam.
Apple also has to worry about the Trump administration's Section 232 investigation into potential semiconductor tariffs, which, Cook noted during the company's latest earnings call, makes it difficult to provide a detailed outlook for the coming months.
'The company guided June [revenue] growth of 'low single to mid-single digits,' roughly 100bps below our expectations,' UBS analyst David Vogt wrote in an investor note following Apple's earnings. 'Additionally, segment color was not provided, raising some concern that iPhone revenue could decline [year over year] in June.'
How Cook ultimately decides to handle the ongoing tariff situation will have a major impact on the company going forward. And while his contemporaries are certainly contending with their own tariff troubles, the stakes are far higher for Apple.
Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.
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