Morningstar: Why software stocks like Microsoft are less at risk from tariffs

Key Takeaways

• Morningstar analysts noted in a recent note that tech companies who are heavily dependent on hardware sales like Apple and Google will be more vulnerable to tariffs.
• Analysts estimated that 60% of smartphones and computers are imported from China. This poses a tariff-related risk for companies like Dell HP and Apple, amid trade tensions with China.
• President Trump said Tuesday that tariffs on imports from China "will come down substantially but it won't be zero."

Tech investors looking to reduce their risk in an unpredictable trade environment could turn to software names like Microsoft (MSFT) and Adobe (ADBE) over tech firms that depend more heavily on hardware sales, Morningstar analysts wrote in a note this week. 

Microsoft, for instance, “has minimal risk exposure to retail, advertising spending, cyclical hardware, or physical supply chains,” they said. Similarly, they added Creative Cloud developer Adobe has a long-term competitive advantage over many other tech firms, pointing to its “wide moat” and minimal risk of disruption.

Smartphones, computers, and semiconductors are presently exempt from President Donald Trump’s “reciprocal” tariffs, but the administration has warned new tech tariffs could be coming in the next few months.

Morningstar analysts estimated that about 60% of smartphones and PCs are imported from China, which raises tariff-related risks for companies like Dell (DELL), HP (HPQ), and Apple (AAPL), amid trade tensions between the U.S. and China.

President Trump said that tariffs on Chinese imports “will come down substantially, but it won’t zero” Earlier this month, Trump had raised import taxes on Chinese goods to 145%, and China retaliated with 125% tariffs on U.S. goods.