Evercore ISI: U.S. IT hardware stocks' Q1 performance is expected to meet expectations, but tariffs/macroeconomic uncertainties may suppress Q2 and full-year guidance

According to the Zhitong Finance APP, investment bank Evercore ISI has released a research report stating that U.S. IT hardware and networking stocks are about to enter the disclosure period for Q1 2025 earnings reports. It is expected that Q1 performance should generally meet or slightly exceed market consensus expectations, as most tariff-related fluctuations occurred after the end of Q1. However, tariffs/macroeconomic uncertainty, combined with the direct tariff impacts resulting from the currently applicable tax rates, may negatively affect the outlook for Q2 2025 and the entire year (considering the uncertainty of tariffs, it is possible that some companies may no longer provide full-year forecasts).

Evercore ISI pointed out that its survey shows that due to increased macroeconomic uncertainty, clients are scaling back project sizes, and the overall demand environment is gradually deteriorating, which will affect IT budgets in the near term and throughout 2025. Therefore, the firm has lowered its earnings per share (EPS) forecasts for most of the companies it covers in 2025 to reflect some tariff impacts and increased downside risks. The firm has kept its revenue forecasts unchanged, as improvements in the exchange rate environment and price increases/cost pass-throughs should offset some potential weakness (the impact of price increases on demand is worth noting). Although the situation remains unclear, the firm believes that the current tariff situation can still be managed through inventory accumulation, supply chain shifts, pricing, and the latest exemption policies (awaiting clear information on industry tariffs).

Beyond tariffs, Evercore ISI believes that the trend of massive capital expenditures will continue to be a key focus, especially considering the concerns over momentum slowdown triggered by Microsoft's cancellation of data center leases, although Google recently reaffirmed its capital expenditure target of $75 billion for 2025. A weak macro environment and scrutiny of federal government consulting expenditures may affect companies that rely heavily on government spending (such as IBM, CDW, etc.).

Evercore ISI stated that overall, the performance of U.S. IT hardware and networking stocks in Q1 should generally meet expectations. Looking ahead, several variables are worth monitoring, including the direct impact of tariffs, macro headwinds, price increases (and their effect on demand), and whether potential inventory accumulation will lead to a pull-forward of demand in Q2 and a demand vacuum in the second half of the year.

Here are some key points on companies covered by Evercore ISI:

Apple (AAPL.US)

Evercore ISI believes that Apple's Q1 2025 performance is expected to exceed market expectations (revenue of $94 billion/EPS of $1.61), but the focus will be on the Q2 guidance and how to account for tariff impacts.

Currently, the tariff on Apple electronic products imported from China is 20%, but the U.S. government may still impose industry tariffs on electronic products imported from China in the coming months. Assuming Apple will not adjust prices before the new iPhone release, its pre-tariff inventory accumulation will limit the impact of tariffs on Q2 performance, thus lowering the Q2 EPS forecast by 7%. Apple will have to bear higher tariff costs in Q3 (if no exemptions), leading to a more than 10% reduction in the EPS forecast. Subsequently, Apple is expected to raise new iPhone prices to offset tariffs, resulting in a high single-digit reduction in EPS each quarter In addition, investors will continue to focus on Apple's revenue in the Chinese market, iPhone revenue, and service revenue growth. Evercore ISI expects Apple's revenue in the Chinese market to remain flat or decline slightly (with a pessimistic expectation of a mid-to-high single-digit decline), iPhone revenue may remain flat or slightly decrease, and service business will maintain low double-digit growth. Notably, exchange rates will significantly benefit Apple, serving as a partial offset.

Evercore ISI stated that in the short term, Apple's stock price will be driven by geopolitical factors, but it is expected that the company can respond to tariff impacts through various mitigation strategies. The firm maintains an "outperform" rating on Apple, with a target price adjusted to $250 due to lowered valuations and earnings per share.

IBM (IBM.US)

IBM will release its first-quarter earnings report after the market closes on April 23, Eastern Time. Evercore ISI expects its performance to generally meet market consensus expectations (revenue of $14.4 billion / earnings per share of $1.41), primarily driven by software and Red Hat business.

Despite broader macro/tariff uncertainty issues, Evercore ISI believes that IBM performs more robustly compared to its peers, as its clients are mainly Fortune 500 companies, and its software/consulting revenue has a high degree of recurrence. The firm believes that potential tariff impacts in its infrastructure segment should be manageable, but consulting business may show weakness due to federal government spending efficiency reforms (which account for about 5% of IBM's total revenue) and macroeconomic fluctuations. The firm believes that IBM may lower its 2025 consulting business growth forecast (currently expected to be single-digit growth), but strong backlog orders, a more favorable exchange rate environment, and AI growth momentum may serve as positive offsetting factors.

Evercore ISI pointed out that IBM's management reiterated its 2025 targets during the analyst day event in February: revenue growth of over 5% at constant exchange rates, PTI profit margin expansion of over 0.5 percentage points, and free cash flow reaching $13.5 billion. The firm believes that this target remains achievable with strong performance from Red Hat, mainframe sales, and contributions from acquisitions. The firm maintains an "outperform" rating on IBM, with a target price of $275.

Arista (ANET.US)

Evercore ISI believes that Arista is expected to achieve revenue targets under extremely low expectations. The firm noted that the stock has recently become a consensus short target, with a year-to-date decline of 34% (compared to an 11% decline in the Nasdaq 100 ETF during the same period). The bearish logic is based on its loss of market share in Meta and Oracle, particularly in backend networking.

Evercore ISI believes that the market expects it to achieve only 17% growth in 2025, failing to meet the $750 million AI backend business target. However, the firm is more optimistic, expecting it to achieve that target and achieve over 20% growth in 2025. The firm has added it to its tactical "outperform" list and believes that its manufacturing is primarily in Mexico and Malaysia, thus being less affected by the 10% tariff, resulting in a quarterly earnings per share adjustment of about 2% Evercore ISI maintains its "preferred" rating on Arista, believing that the risk of market share loss is overestimated, while lowering the target price from $130 to $100, reflecting a reduction in earnings per share and valuation.

Amphenol (APH.US)

Amphenol is set to release its earnings report on April 23rd, Eastern Time, and is expected to exceed market expectations. The company has historically managed macro fluctuations well, making it particularly suitable to hold under current tariff/macroeconomic uncertainties. The firm expects it to outperform market expectations driven by AI growth and the Andrews acquisition (contributing $1.1 billion in revenue/ $0.06 earnings per share in 2025). Additionally, improvements in IT/data communication fundamentals, AI support, and strong military/aerospace business are expected to drive growth.

Evercore ISI believes that Amphenol's first-quarter performance will be driven by the IT/data communication and military/aerospace markets, and it is expected to provide second-quarter guidance in line with market expectations. The firm maintains an "outperform" rating on Amphenol, with a target price unchanged at $88.

TE Connectivity (TEL.US)

Evercore ISI points out that TE Connectivity's first-quarter earnings report will show expected organic growth, with second-quarter revenue expectations slightly below seasonal levels. Investors will focus on the forward guidance provided by the company and the impact of tariffs on its and broader end-demand. Notably, a weaker dollar will bring over 200 basis points of revenue benefit.

From the end market perspective, the company's automotive business is expected to perform strongly in Asia (especially China), potentially offsetting weakness in Europe; the industrial market shows geographical differentiation; communication solutions will continue to grow; and AI is expected to contribute $600 million in revenue by 2025.

Evercore ISI summarizes that despite the uncertain macro and tariff outlook, TE Connectivity should still report better-than-expected performance, maintaining an "outperform" rating on the stock with a target price of $160.

Vertiv Holdings (VRT.US)

Evercore ISI expects Vertiv's first-quarter performance to slightly exceed expectations, as data points around broader data center infrastructure spending remained relatively stable throughout the quarter. The firm anticipates that Vertiv will reaffirm its forecast of 16%-18% organic growth for 2025 and earnings per share of $3.50-$3.60, focusing on order growth and backlog performance, especially considering the high base of a 60% year-on-year increase in orders during the same period last year. The firm expects order momentum to remain strong, although tariffs may cause some disruptions.

Evercore ISI maintains a long-term positive outlook on Vertiv, stating that it has the ability to manage tariff risks. The firm maintains an "outperform" rating on Vertiv, with the target price adjusted to $100 due to a reduction in earnings per share (approximately 3%).

CDW (CDW.US)

Evercore ISI expects CDW's first-quarter performance to be broadly in line with expectations, with recent tariff announcements potentially leading to early customer purchases that could provide upside potential. The firm states that despite ongoing macroeconomic uncertainties, CDW should be able to maintain its low single-digit earnings per share growth and gross profit growth The bank believes that CDW can achieve its 2025 earnings per share target solely through share repurchases, but considering the adverse factors related to tariffs, the bank has conservatively lowered its 2025 earnings per share forecast.

Evercore ISI maintains a "Outperform" rating on CDW, with a target price lowered to $185