The Impact of Tariffs on the Stock Market: Q1 Preview

Heightened volatility and extreme news-driven sentiment in the markets are leading to quick whipsaws of 3% or more in either direction daily. These swings of quick drops to quick pops are getting traders addicted to the idea that tariff-related macro uncertainties will resolve smoothly in the end. 

Despite the markets approaching bear market territory in March, the market is rallying on the hope that geopolitical tensions will ease. Meanwhile, analysts are revising estimates under the hood with cautious notes that these issues will not disappear overnight. The reality of what it will take to move supply chains will eventually settle in. 

Below, we dig into early commentary from executive teams and analyst observations in early March and April pointing to growing uncertainty on customer behavior and demand, supply chain challenges, and how this sets the stage for Q1’s earnings season and beyond. 

Consumer Electronics in Focus as Analysts Estimate Apple’s Impacts 

Apple will be a central player in the potential tariff impacts, being nearly a pureplay in the consumer electronics sector with heavy reliance on China. 

Apple’s diverse global supply chain exposes it to multiple tariffs of different rates depending on production location, with iPhone production concentrated in China but also located in India and Brazil. Apple is said to have quickly shipped 600 tons of iPhones, or ~1.5 million worth nearly $2 billion, from India before tariffs were implemented, while also increasing production of the iPhone 16e in Brazil to avoid higher Chinese tariffs, 

As to how tariffs could impact Apple and its prices, analysts broadly see higher prices on the horizon, regardless of whether Apple passes tariffs on or works to bring manufacturing to the US to avoid paying tariffs.  

Wedbush analysts estimate that onshoring iPhone production to the US could increase iPhone prices to $3,500, assuming it would cost $30 billion over 3 years to bring just 10% of its supply chain onshore.  

BofA estimated that based on higher labor costs alone, iPhone 16 Pro prices could rise at least 25%, from $1,199 to $1,500 -- this does not even account for higher chip prices or higher component prices.  

In a report from earlier this week, Citi estimated that iPhone prices would rise 7% globally “if China/India total tariffs are 45%/10%, assuming another 25% tariff on Apple products exported from China to the US through Section 232, and Apple (passing) all tariff costs to end customers.”  

However, on Wednesday morning, the administration floated the idea of China tariffs to a baseline 50%-65%, above Citi’s estimates and likely to further inflate prices.  

Other analysts see much higher prices even if Apple passes on the entirety of the tariff burden to consumers -- Rosenblatt estimates that iPhones could be up to 43% more expensive, while Counterpoint Research estimates prices could be up to 30% more depending on manufacturing location.  

Evercore estimates Apple could face a $9-10 billion impact to COGS at an effective tariff rate of 16%, which they expect would impact full-year EPS by  (7%), or $0.51.  

Price hikes to this degree could negatively shock demand, with the smartphone market already on thin footing this year. Global smartphone shipments rose 1.5% YoY in Q1, per IDC, though the group said this was due to a supply-side surge in shipments ahead of tariffs. 

IDC said this dynamic “effectively inflated Q1 shipment figures beyond levels anticipated based on underlying consumer demand trends alone,” adding that heightened geopolitical tensions between the US and China and growing tariff uncertainties were a “strong reason for concern” for 2025 growth.  

TrendForce estimated that the “best case scenario will see the smartphone market flat at best” in 2025, while the “worst case scenario is a production decline by as much as 5% YoY.”  

The PC market is in a similar situation as smartphones, with shipments rising in the high single-digits in Q1, again with the increase driven by vendors stockpiling rather than strong consumer demand.  

IDC recently cut its PC forecast for the year, seeing 3.7% growth in global shipments and just 0.2% growth in consumer shipments, as tariff-driven price hikes “combined with subdued demand are leading to a negative impact within the largest market for PCs.” Canalys expects that “subsequent quarters this year are likely to see a slowdown as inventory levels normalize and customers face higher prices,” even as the Windows 10 end-of-life and upgrade cycle looms.

Auto Facing Rapidly Shifting Tariff Policy, Uncertainty 

Auto executives united this week to lobby against the 25% tariff the sector faces, saying the tariffs will upend the global supply chain and cause a domino effect of higher prices for consumers, lower vehicle sales and higher repair costs. On April 23, the administration noted that Trump was considering exempting auto parts from tariffs on China imports, though the separate 25% tariff would remain and go into effect on May 3.  

Ford already warned dealers that it anticipates increasing prices for May production, after halting shipments of US-made vehicles to China due to the high tariffs. Notably, Tesla walked back on its growth guidance for 2025 this week, while auto-exposed semi Aehr warned of uncertain customer behavior and demand.   

Aehr, Tesla Pull Guidance on Tariff Uncertainty 

Reporting shortly after tariffs were announced at the start of April, semi small-cap Aehr provided some insight into the auto market, an important first look considering its high customer concentration with Onsemi.  

Aehr’s management believes the company will not face significant impacts from tariffs, though the main concern they echoed was that the real challenge “is not being able to control near-term secondary effects on our current and potential new customers, such as possible near-term delays in customer orders or requested delivery dates.” Because of the broader impacts to the customer ordering behavior, supply chain and shipment delays, and tariff implementation, Aehr pulled its guidance and stated they would re-evaluate as they get more clarity. 

On Tuesday, Tesla also pulled its guidance in similar fashion, stating that it is “difficult to measure the impacts of shifting global trade policy on the automotive and energy supply chains, our cost structure and demand for durable goods and related services.” Tesla also shifted its tone on vehicle growth for 2025, first saying in Q4 that it expects to return to growth in 2025, but now saying the growth outlook would be revisited in Q2. A company statement added that the rapidly changing policy “could have a meaningful impact on demand for our products in the near term.” 

Significant Downward Revisions Hit Tesla After Q1 

Tesla sits at the crossroads of consumer demand and China tensions. The company’s Q1 report revealed margin weakness once again, along with a large revenue and EPS miss. Tesla’s estimates for 2025 have already faced substantial pressure over the last four months, and that’s before additional industry-wide growth concerns rose with tariffs. 

Automotive gross margin (excluding regulatory credits) declined more than 1 point QoQ to 12.5%, while operating margin dropped to just 2.1%. As a result of the nearly $2 billion revenue miss and contracting margins, adjusted EPS declined (40%) YoY to just $0.27, missing the $0.42 consensus by a wide margin. This weighed heavily on growth expectations for 2025, as EPS generation was expected to improve significantly through the rest of the year. 

In just the first day after Q1’s report, Tesla already witnessed a major haircut to growth expectations for both revenue and EPS. 2025 revenue was revised $10 billion lower to $96.8 billion, for a (1%) YoY decline, while EPS was revised more than $0.50 lower to $1.98, for a (20%) YoY decline. 

Tesla’s 2025 revenue and EPS estimates were already under pressure, but the stock saw additional negative revisions after Q1’s double miss. Source: YCharts 

Consider that at the start of 2025, Tesla was expected to see nearly 20% YoY revenue growth and 30% YoY EPS growth. After just the first quarter, Tesla’s revenue has been revised a total of $20 billion lower and EPS more than $1.20 lower, marking a significant erosion of growth even before tariff impacts on costs and demand are felt.  

The I/O Fund specializes in covering lesser-known AI stocks on our research site with trade alerts and weekly webinars. Learn more here. 

Indirect Tariff Impacts Arise for Big Tech  

From Big Tech, we’re seeing some indirect tariff impacts arise, notably from major Chinese retailers pulling ad spending on Meta and Google. 

PDD’s Temu and Shein both are drastically reducing ad spending in the US, after the end of the ‘de minimis’ exemption on packages from China valued at less than $800 earlier this month. Temu reportedly “axed all spending on Google’s Shopping platform since April 9,” while data showed that its daily ads run on Google plunged 99.9% to just 14, down from 30,000 to 60,000 at the beginning of April. 

Across popular social media platforms including X, YouTube, and Meta’s platforms, Temu reduced spending “by an average of 31% in the two weeks leading to April 13 compared with the previous month,” per SensorTower. Shein’s daily ad spending “across Meta, TikTok, YouTube and Pinterest fell 19%” over the same period. However, SensorTower noted that Temu’s ad spend had risen so quickly, that even after the reductions, it was still above 2024’s level.  

For Meta, China accounted for ~11% of revenue in 2024 at $18.4 billion, while for Google, YouTube accounted for more than 10% of revenue at $36.1 billion. Lost spending from two popular retailers could potentially lead to billion-dollar revenue impacts that then weigh on EPS.  

Over the past month, Meta has seen 2025 revenue estimates move more than $2 billion lower to $186.4 billion, and EPS estimates (2%) lower to $24.90, now pointing to growth of just 4.4% YoY. Google’s impacts are more limited at this time, with revenue and EPS each revisions under (1%). 

Since tariffs were implemented in early April, Meta and Alphabet stocks have seen negative revenue and EPS revisions. Source: YCharts 

AI Semis, Hardware 

Recent reports from across the AI hardware industry, from semis to servers, point to an uncertain environment stemming from tariffs ...

TSMC Sticks to Mid-20% Sales Growth Guide on Strong AI Demand 

TSMC stuck to its 2025 forecast for mid-20% sales growth, as it guided Q2 revenue growth ahead of consensus at 38% YoY after beating on the top and bottom line in Q1. Management addressed tariff impacts and acknowledged uncertainties, noting that there might be more clarity in a few months’ time. However, there are signs that tariff-related effects and higher costs will flow downstream to TSMC’s leading customers such as Apple.  

CEO C.C. Wei seemed to brush off broader growth concerns, stating that the chipmaker has not “seen any change in our customers behavior so far” with AI demand remaining robust throughout 2025. Wei acknowledged that TSMC “might get a better picture in the next few months” on tariff impacts to end market demand.  

Despite management’s confidence in riding strong AI demand to mid-20% growth this year, analysts are growing more concerned about the full-year guide given the risks key customers are facing. JPMorgan analysts say TSMC “could pare [its forecast] slightly to target low- to mid-20%” sales growth, while Deutsche Bank analysts raised the concern that the chipmaker “may also withdraw its guidance as customers adjust to tariffs.”  

Estimates have yet to reflect some of these concerns, with 2025 revenue forecast at $113.7 billion, up from $111.2 billion at the end of March, likely due to Q2’s guidance beat. EPS estimates are also up 2% over the past month to $9.46, or 31.5% growth.  

On a quarterly basis, Q4 is expected to be the weakest, with revenue growth decelerating to 11.5%. Q4’s revenue has been revised nearly (6%) lower over the past three months and (4%) lower over the past month to $29.4 billion. EPS mirrored this, revised (6%) lower over the past three months and (5%) lower over the past month to $2.57, for growth of just 5.5%. This raises some initial red flags about holiday demand for consumer electronics and other devices. 

TSMC’s Q4 earnings have been revised nearly (6%) lower over the past three months in stark contrast to revisions in Q2 and Q3. Source: Seeking Alpha 

TSMC’s US production push could also impact customers alongside tariffs. Recently, TSMC boosted its US investments to a total of $165 billion in its Arizona complex, now aiming to construct six fabs and an AI research facility. The first fab is in volume production for the 4nm node, while the second fab for 3nm chips completed construction with TSMC aiming to accelerate volume production to meet demand – Nvidia and AMD both announced last week intentions to ramp production with TSMC in the US as tariffs loom. 

While ramping US production theoretically would eliminate tariff risks, it still could have downstream effects on end market customers and consumers that mimic higher prices that tariffs bring. Reports suggest that TSMC is considering hiking 4nm prices by up to 30% in the US, as primary customers Apple, AMD and Nvidia are said to be rushing in orders. Other reports suggest that all of TSMC’s US chips could see prices hikes of at least 15% due to higher labor costs and depreciation. It’s unlikely TSMC’s top customers will be willing to simply absorb a 30% increase in US-made wafer prices without passing some or all of these costs on, which could add more price pressure on top of tariffs for electronics products such as smartphones, PCs, gaming chips, and more.  

ASML Says Tariff Impacts Uncertain, Stands by 2025 Guidance 

ASML also stood by its 2025 sales guidance despite missing rather widely on bookings, and its management team was much more cautious than TSMC on the broader macro impact from tariffs, stating bluntly that “it is clear that uncertainty is increasing in the macro environment.” 

ASML’s management explained that while tariff discussions were just starting, the “end state will be unknown for a while and until then, the potential impact” will remain unclear, and gross margin impacts would be “absolutely impossible” to quantify. CEO Christophe Fouquet added that uncertainty at some customers could push 2025 sales towards the lower end of its €30 billion and 35 billion range, though strong AI demand could push it towards the upper end, hesitating to commit to either side.  

Although ASML did not quantify potential impacts, a Reuters report outlined impacts to US-based WFE makers. Reuters noted that according to industry calculations shared with lawmakers, tariffs could cost the US WFE industry $1 billion annually, with Applied Materials, Lam Research and KLA all facing impacts of up to $350 million each.  

Expectations for ASML have strengthened over the past three months, even with bookings missing estimates by nearly €1 billion and Q2’s guide coming in soft. Revenue estimates through Q4 have been revised 7% to 14% higher over the past three months, while EPS estimates have risen 1.7% to 4.4%. For the full year, both revenue and EPS have been revised 11.5% to 12.5% higher.  

ASML’s revenue and EPS have both been revised more than 10% higher since the start of 2025 despite Q1 bookings missing estimates by nearly 1 billion. Source: YCharts 

Management signaled an intent to pass tariff costs on and not bear any of the burden themselves, while questioning how tariffs would “ultimately be absorbed in the entire value chain.” ASML said that they are working to “minimize the total exposure of the ecosystem to tariffs,” but once it has been minimized, they will pass the tariff burden on to the “next element in the value chain.” While ASML is exempt from tariffs at the moment, parts and inputs such as steel and aluminum are not. With ASML shipping parts, inputs and tools up to “multiple times” between the US and Europe, tariff impacts could quickly add up. 

Thus, it’s likely that TSMC, Intel and Samsung, could face rising costs for ASML’s machines, especially considering that the blended ASP for ASML’s low-NA EUV machines sits at 227 million euros, or ~$258.8 million. For TSMC’s case, analysts estimate that ~65% of its $100 billion US investment announced in March could go to WFE, and if it faces 15% higher costs from tariff impacts, that could mean an additional $6 billion more it would have to spend for the same equipment, and an additional $6 billion to pass on to customers to maintain margins.  

Micron Not Including Tariffs in Guidance, Estimates Dropping 

On the memory side, Micron has flagged two key factors: it intends to pass along any tariff costs to customers, and that it has not included impacts from “potential new tariffs” in its guidance offered in March due to a lack of clarity on tariff timing and implementation. Micron noted that it “serves as the U.S. importer of record for a very limited volume of products that would be subject to newly announced tariffs on Canada, Mexico and China.” 

For its fiscal Q3, Micron had guided for record revenue of $8.8 billion, +/- $300 million, ahead of estimates, though it projected gross margin to decline 130 bp sequentially to 35.5%, in part due to higher product mix and weaker pricing in consumer-oriented products. Guidance also included $1.13 billion in operating expenses, and growth in DRAM and NAND bit shipments. However, recent industry forecasts suggest that memory chip demand is disrupting typical seasonal trends and has been “largely frontloaded into the first half of 2025” as US-based firms work to beat tariffs.  

Being more heavily exposed to the dynamic consumer markets opens Micron up to more risk than say a company like ASML, as not only does Micron have to contend with some tariffs on its products, but also more directly with end market demand, which could struggle if smartphone or PC prices rise and dent demand.  

Management previously expected PC growth to be weighted toward the second half of 2025, and smartphone growth in the mid-single digits. As noted previously, industry estimates are pointing to a much more challenged growth picture for the two markets. With Micron seeing 30% revenue exposure to PC, graphics, and mobile end markets, slower end market growth than management currently expects can weigh on Micron’s 2H revenue growth. 

Should tariff related price and demand impacts pressure margins, Micron could see further downside to EPS, which has already come down more than (20%) over the last five months. In early December 2024, Micron was estimated to generate almost $9 in EPS in fiscal 2025, but after its weak Q2 guide, that has now come down to $6.9. A (10%) impact from tariffs could take Micron from the $7 level to the low-$6 range.  

Micron’s fiscal 2025 EPS has already been revised nearly $2 lower after its weak Q2 guide, before tariff impacts are felt. Source: YCharts 

On a quarterly view, revenue estimates through Q1 2026 (Nov 2025 quarter) have been largely unchanged over the last three months, though EPS revisions range from (2%) to over (6%) lower likely on margin risks. 

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HPE To Mitigate Tariff Impacts, Sees ~4% Impact to EPS 

HPE was one of the only AI-exposed firms so far to quantify potential EPS impacts from tariffs in early March, though it is facing broader pressures on margins and EPS from higher AI server inventories.  

For Q2, HPE guided well below estimates for adjusted EPS, seeing $0.28 to $0.34 versus consensus at $0.50. HPE also cut its forecast for the full year, seeing adjusted EPS between $1.70 to $1.90, compared to consensus at $2.13.  

This was driven by issues in HPE’s Server segment -- management said that Server margins were adversely impacted by higher discounts, aggressive pricing competition, and “higher-than-normal AI inventory caused by the rapid transition of demand to next-generation GPUs and related components.” Though HPE took action to mitigate these impacts, it noted that these headwinds will apply continued margin pressure over the next one to two quarters.  

Additionally, HPE placed a number on tariff impacts, adding that the majority of it would hit in Q2:  

“What we've got in the guide is actually $0.07 for the year and that gets you to the midpoint of the $1.80 on the guide. I would add though the way to think about tariffs is, we've worked obviously on mitigation effects, but it does take time to see those mitigation effects take place. So as a result, literally $0.04 of that $0.07 is actually going to be in Q2, and it's also in the Server business which is where we see the greatest extent of that [tariff] impact.” 

This would be just nearly (4%) impact to EPS, though management shared broader concerns over how tariffs would impact end market demand in the second half of the year. If tariffs indeed lead to lower demand, higher costs and more prolonged margin headwinds, it could result in a much larger EPS impact given 60% of the $1.80 guide is weighted in 2H. For example, if tariffs have closer to an 8% to 12% adverse impact to EPS, to the high $1.60 range, HPE could be looking at a YoY decline of (14%) to (17%) versus the (10%) currently expected.  

HPE’s fiscal 2025 earnings growth estimate has dropped from 10.5% YoY to (6.8%) YoY as a result of its cut guide, with tariff impacts yet to be felt. Source: YCharts 

What This Means for Q1 and 2025 

It’s no doubt that April has been quite a rocky month for stocks as earnings season ramps up, with the Dow headed for its worst April return since 1932, the VIX reaching levels higher than in all of 2022, and bearish sentiment reaching extremes, as we outlined in our analysis The Fed Can’t Save This One: Why Bonds May Break the Stock Market in 2025.  

Initial commentary from Q1’s first reports and broader macro developments in early March and April raises a few major issues for the Q1 season and for 2025: 

1. Increased macro uncertainty weighing on customer behavior and impacting ability to forecast growth, with numerous companies pulling guidance 
2. Supply chain challenges and higher prices as tariffs rise 
3. Earnings and revenue expectations being revised lower, though full tariff impacts are yet to be felt 

Tariffs could quickly complicate the global supply chain and have trickle-down effects to consumers, as it’s impossible to onshore complex supply chains to the US overnight, or in short order, without facing major increases in costs. Companies like Apple may also be hesitant to commit to onshoring significant levels of manufacturing given the billions in costs and years it would take. Companies must also consider the fluctuating trade policies could shift in a way that would make domestic production unfavorable in the future.  

The auto and consumer electronics industries indicate that rising part and component costs from tariffs can and likely will lead to higher product prices in the coming months/quarters, which may then in turn pressure consumer demand. Should weaker consumer demand lead to production cuts or rising inventories, that could exacerbate margin pressures and lead to further downside to EPS. 

As of now, there’s been limited commentary about the potential impact of tariffs on growth and earnings, with most tech companies simply saying the environment is too uncertain to forecast or indicating an intent to pass costs along the chain to customers and thus landing with consumers.  

This begs the question -- what if tariffs cause much larger negative impacts to EPS this year, and in turn, what do growth expectations then look like? HPE was one of the few so far to put an EPS impact from tariffs at approximately (4%), but if the impact is closer to (10%) or even (15%) from higher costs and weaker demand, corporate earnings growth expectations would need to be revised much lower.  

Similar to what we discussed last week in our analysis Tesla Stock Faces Recalibration of Growth Expectations, downward revisions could easily snowball and take growth from high double-digits to single-digits, from up single-digits to down single-digits, or from down single-digits to down double-digits.  

What this Means for Tech Valuations 

What’s most important for investors is what all this uncertainty means for tech valuations. Social media would have you believe the world is ending one day, and that a China deal would make all these issues simply disappear with no lasting impact to be felt.  

On the semi and AI hardware side, valuations are reaching multi-year lows, with TSM trading at its lowest forward P/E since the start of 2023 and ASML trading at its lowest since early 2020.  

On a forward P/E basis, TSM and ASML are trading at levels not seen in at least a year. Source: YCharts 

Ahead of ASML’s earnings report last week, there was rising talk and belief that the worst expectations and many risks are being priced in, as its forward P/E had compressed by more than half since its peak above 50x in July 2024.  

However, we have yet to fully understand and quantify the impacts of tariffs to revenue, margins, EPS and customer demand over the next few quarters. There’s risk that growth expectations get re-rated lower for leading tech stocks, either via direct tariff impacts or indirect impacts from lowered spending, macro slowdowns and/or weaker consumer demand.  

For most of the Mag 7, investors have been accustomed to strong earnings growth since 2023 as the tech giants captured AI tailwinds; for 2025, Meta, Alphabet and Amazon are facing significant decelerations in EPS growth, in part due to tough comps from high growth last year.  

Some of the Mag 7 leaders over the past two years are expected to see EPS growth dramatically decelerate in 2025. Source: YCharts  

For Meta and Google, should lower ad spending from major Chinese clients, and weaker economic growth weigh further on ad spending, both could see increased risks from losing multiple-billions in high-margin ad revenue, considering it flows heavily to the bottom line.  

Alphabet, Amazon and Meta are trading near the lowest forward P/E multiples since early 2023. Source: YCharts 

Investors are still paying 30x forward earnings for Amazon despite headwinds to retail sales and possible risks to cloud consumption growth and ad spending.  

Valuations may be approaching lower levels, but the risks on the horizon have amplified -- for the tech sector, macro headwinds are becoming much more pronounced, with risks to customer demand on core growth drivers, whether that be cloud, ads, auto or consumer electronics.  

Conclusion 

Analysts are beginning to revise earnings and revenue estimates lower as uncertainties rise, and this will likely continue throughout Q1 and into Q2 due to the effects of tariffs.  

Investors have been trained to buy-the-dip, and to expect the dip will always quickly recover in short order; however, as we have cautioned earlier this month, investors need to be prepared for a changing dynamic as bonds are equally as concerning in terms of what could impact the market this year. 

If you want to identify which Mag 7 stock is the strongest, and which stocks are the weakest in this new tariff-driven economy, then we encourage you to attend our upcoming weekly webinar for premium members. Join us Thursdays at 4:30 p.m. EST to hear our game plan regarding the remainder of 2025 including our strategy to raise cash and further hedge. Our cumulative returns of 210% and annualized returns of 27.6% place us as one of the top performing tech portfolios, beating Wall Street’s very best. Learn more here.

Disclaimer: This is not financial advice. Please consult with your financial advisor in regards to any stocks you buy.

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