Observers say that the new tariffs introduced by the Donald Trump administration may pose the most significant challenge, impacting the initial budget proposals for data centers that the country plans to use to surpass its competitors in the AI race.
On Wednesday, Trump announced a set of new tariffs targeting a range of countries and leading technology exporters. Imports from China, ###, and South Korea, which are leading suppliers of electronic and data center equipment, will now face tariffs of 34%, 32%, and 25%, respectively.
These three countries collectively represent some of the largest sources of technological hardware used in U.S. infrastructure. In 2024 alone, electronics, including smartphones, PCs, and data center components, are estimated to account for nearly $486 billion of U.S. imports.
According to analysts at Bernstein, data processors from China, Mexico, Vietnam, ###, and Malaysia make up $200 billion.
Potential Budget Readjustments and Procurement Shifts
In light of recent developments, analysts point out that the capital expenditures of tech giants used for importing some of these goods will be reorganized as they may scale back expansions and focus more on hedging or procurement shifts.
Semiconductors, arguably the most crucial components in modern electronics, are not surprising targets of the new tariffs. However, reports indicate that the White House still plans to address these chips in the future.
When discussing this development, AMD stated that it is “evaluating the details and any impact on our broader customer and partner ecosystem.” However, its shares, along with those of other leading GPU and chip manufacturers like NVIDIA and BROCTOM, fell by 7% to 10%, while U.S.-listed shares of semiconductor heavyweight TSMC lost 7.6% of their value as of Thursday’s close.
Intel underperformed its peers, growing only 2.1% following reports of an initial joint venture agreement with TSMC.
Other analysts noted that equipment used for manufacturing data centers will become more expensive due to the new tariffs. Companies like Microsoft and Amazon, which are engaged in the data center business, reportedly took a more balanced and cautious approach amid some developmental phases.
The Trump administration has not yet taken responsibility for semiconductors, as this could be a long-term strategy to aid local developments of other data centers. However, investors in the field remain unclear as tariffs still apply to circuit board components sold with semiconductors.
However, if the hardware accompanying these semiconductors is exempt from tariffs, it could ensure that costs do not rise significantly, according to Dylan Patel, founder of industry research firm SemiAnalysis.
The Future of Tariffs and AI Infrastructure
The U.S. government claims that the rationale for the tariffs is related to developing the U.S. economy and providing more jobs for Americans. However, these actions could also impact the highly invested sector in the U.S.—AI adoption. This industry largely relies on data centers, whose expansion has received public support from President Donald Trump.
Earlier this year, Trump announced Stargate, a $500 billion initiative aimed at establishing U.S. leadership in the field of AI development, involving companies such as OpenAI, which developed ChatGPT, Oracle, and Softbank Group.
Observers say that due to the current tariffs, the Stargate project is expected to generate 20 data centers in the U.S., making it difficult for the project to reach its targeted funding amount, as investors may wish to avoid the increased costs associated with these projects.
Leading cloud service providers are not exempt from these pressures: reports indicate that Microsoft, Alphabet, and Amazon, due to their substantial AI budgets, are facing diminished investor confidence. Microsoft’s stock closed down 2.4% on Thursday, while Amazon and Alphabet saw declines of 9% and 4%, respectively.
Six months ago, Microsoft reportedly plugged in some data center projects in the U.S. and Europe due to supply exceeding demand for services at 2 gigawatts.
HSBC warned on Thursday that leading brokerage firms might lead to a slowdown in cloud spending, while NVIDIA risks losing revenue due to waning demand.
Another analyst mentioned that the tariffs could trigger a surrender of demand and result in cuts to software and cloud spending. The impending challenging economic environment could also lead to a reduction in digital advertising expenditure, impacting giants like Alphabet and Meta.
Apple is not excluded, as it may face rising prices for its devices, potentially exceeding $2000, due to its large manufacturing base in China. The company’s stock fell by 9%.
Beyond technology, other sectors are feeling the squeeze. Stocks of fashion brands like Nike, Adidas, and Puma, which source heavily from Southeast Asia, have plummeted in value, with Vietnam and other countries facing tariffs exceeding 40%.
Luxury goods, champagne, and foreign-manufactured cars are expected to rise in price. Some employers, such as automaker Stellantis, have already responded by mentioning that they will temporarily lay off 900 employees.
