Citigroup Warns Semiconductor Stocks Face 20% Drop from Tariffs

Citigroup has identified Micron Technology (MU.US), ON Semiconductor (ON.US), and Broadcom (AVGO.US) as the companies with the highest risk exposure to tariff impacts. Analyst Christopher Danely, in a report to clients, highlighted that these companies are particularly vulnerable due to their profit margins and market valuations. Micron Technology and ON Semiconductor are noted for their lower profit margins, while Broadcom, with its higher price-to-earnings ratio, faces risks from potential market compression.

Danely emphasized the complexity of the tariff policies, stating that the length and diversity of the semiconductor supply chain make it nearly impossible to fully assess their impact. He warned that if these tariffs trigger an economic recession, all semiconductor stocks could see significant declines, potentially dropping by 20% or more. The analyst also noted that if the tariff policies persist for another month, the increased uncertainty could lead to a "freeze" in the supply chain, resulting in a sharp decline in order rates and inventory levels. This scenario could prompt companies to lower their earnings forecasts, similar to the impact seen during the COVID-19 pandemic. However, once the supply chain and tariff policies stabilize and become more predictable, the market could experience a significant rebound, much like the recovery post-pandemic.

The tariff policies announced by the U.S. administration have sent ripples through the global economy, with the technology sector being particularly affected. The products on the tariff list, however, do not include semiconductors, which were exempted. Despite this exemption, the overall uncertainty and potential for economic downturns pose significant risks to semiconductor companies. The complexity of the supply chain, which spans multiple regions and involves numerous components, adds to the challenge of predicting the full impact of these policies.