Why One Analyst Sees China As a Huge Overhang For Tech in Q3

September 26, 2019 by Chris Lange

Third-quarter earnings season is coming soon for tech players, and this will take place over the next month. However, the biggest worry from investors continues to be the China black cloud which is casting a long shadow over semiconductor and tech names across the board.

Tech stocks are ultimately caught in the crossfire with Apple and the semiconductor space remaining front and center as Wall Street is carefully watching how tech vendors are dealing with the current trade tensions.

The biggest worry looming seems to be the December 15 tariff deadline which has the potential to be very damaging if this tariff is not removed or kicked further down the road by the Trump administration.

Resolving long-standing intellectual property (IP) issues in China is a major focus of software/chip vendors as well as Wall Street in general. Ongoing negotiations between the two are helping shine a brighter spotlight on these IP issues that have plagued growth in the China region for decades, ultimately impacting US technology vendors.

The trepidation among tech investors surrounding these continuing trade talks are based on possible speed bumps that could derail a broader agreement/truce as the clock ticks heading into the December 15 date. Lack of an agreement could be a huge risk for tech stocks over the coming months as fundamentals continue to generally track in the right direction despite some small cracks in the armor.

Wedbush sees China as the biggest overhang for these tech stocks going into the third-quarter earnings season. The firm commented:

Inking a broader trade agreement around import imbalance and equally important, in our view, structural changes around forced technology transfer, IP protection, cyber intrusions/theft, services, and agriculture will be the focus of tech investors going forward. Ever since the “Fort Sumter” moment when President Trump blocked Broadcom’s $117 billion bid for Qualcomm last year citing national security concerns around 5G, the technology sector and investors have been wondering what would be the next poker move between the two countries regarding national security, 5G competition, IP theft, and broader cyber risks that have been heightened on worries/media reports around stepped up hacking from China and related hacking groups on US technology companies.

While negotiations going forward will be key for this potential agreement timetable between the United States and China, Wedbush believes that closer cooperation and negotiations around the growing IP theft issue are potential positives for U.S. tech vendors. Curtailing the hundreds of billions of dollars lost annually by U.S. companies to hacking, espionage and nation-state attacks is long overdue and a step in the right direction.

Essential Tips for Investing: Sponsored

A financial advisor can help you understand the advantages and disadvantages of investment properties. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Investing in real estate can diversify your portfolio. But expanding your horizons may add additional costs. If you’re an investor looking to minimize expenses, consider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.