In the tariff storm, software stocks like Microsoft have become a safe haven

In the wave of tariffs from Trump, American software stocks, leveraging their unique digital advantages, are becoming a safe haven.

According to media reports on Tuesday, as Trump's tariffs shake up the market, software companies are in a favorable position due to their digital business models. Companies like Microsoft, Oracle, and ServiceNow are expected to be less affected as they primarily sell digital products and services rather than physical goods.

The software industry appears particularly attractive in the current environment, with the U.S. software industry index rising nearly 5% this year, while the Nasdaq 100 index has fallen nearly 1%. The Philadelphia Semiconductor Index has dropped 4%, and hardware stock indices have decreased nearly 13%.

HSBC's Head of Technology Research, Stephen Bersey, stated:

The software model has many characteristics that make it attractive during economic turmoil, which is why we are much more optimistic about it compared to hardware. As digital products, software does not require physical transportation and will not be significantly impacted by tariffs. At the same time, we have seen a frenzy of selling following the tariff announcement, which means that some high-quality software companies have become quite valuable.

Software Stocks Shine While Hardware Manufacturers Struggle

Tech giants like Microsoft and Oracle are expected to stand out in the trade war, while hardware companies that rely on physical products face the risk of profit erosion.

In the software industry, Microsoft's recent earnings exceeded expectations and showed strong demand for its AI products, marking the largest weekly gain in over two years. The company also made positive forecasts for its cloud computing business. The stock has risen over 25% from its April low, surpassing Apple to become the world's most valuable company.

ServiceNow's stock also recorded its largest gain in over a decade, following a report that showed strong demand trends and a positive outlook. Subsequently, the company held a highly anticipated press conference announcing that its main AI software product's annual contract revenue would reach $1 billion next year.

In stark contrast to software companies, hardware manufacturers like Apple, which rely on complex global supply chains, will face severe challenges. Analysis shows that tariffs could significantly damage these companies' profit margins, forcing them to either absorb the cost hit or pass the costs onto consumers, potentially leading to a decline in demand.

It is worth mentioning that Wall Street is more optimistic about the future performance of the software industry. According to Bloomberg research, software companies are expected to achieve a 13% profit growth this year, up from the previous estimate of 11.6% about a month ago. Revenue is expected to grow by 10.6%, and this estimate has also increased in recent weeks.

Tariffs Become the Biggest Consideration for Investors

Tariffs have been a major source of uncertainty, and whether or not they are affected by tariffs has become a key judgment criterion for investors.

George Cipolloni, a portfolio manager at Penn Mutual Asset Management, believes that tech investors need to consider two categories: one is companies facing headwinds from tariffs, and the other is companies that are unaffected

If you are considering investing in stocks within the tariff category, you need to be very cautious. These companies may have greater upside potential if there is good news regarding tariffs, but otherwise, the risks are higher. Amazon and Apple are "doing their best in a tough environment," but their prices are not cheap enough for him to be willing to take on the risk.

On the other hand, non-tariff categories are very easy to hold right now. As long as the background remains uncertain, it should perform better. Currently, this category is filled with software.