Evercore ISI: The performance of US IT hardware stocks in Q1 is expected to meet expectations, but tariffs and macroeconomic uncertainties may suppress Q2 and full-year guidance.

Investment bank Evercore ISI released a research report stating that the US IT hardware and networking sector is about to enter the disclosure period for the first quarter of 2025 financial reports. It is expected that first quarter performance should be in line with or slightly better than market expectations, as most of the tariff-related fluctuations occurred after the end of the first quarter. However, tariff/macro uncertainty, along with the direct tariff impact caused by the current applicable tax rates, may have a negative impact on the outlook for the second quarter of 2025 and the full year (considering the uncertainty of tariffs, it is not ruled out that some companies may no longer provide full-year forecasts). Evercore ISI pointed out that its survey shows that due to increasing macro uncertainty, customers are reducing project sizes, and the overall demand environment is gradually deteriorating, which will impact IT budgets in the near term and throughout the entire year of 2025. Therefore, the bank has lowered its 2025 earnings per share (EPS) forecast for most of the companies it covers to reflect some tariff impacts and increased downside risks. The bank maintains revenue forecasts unchanged, as improved exchange rate environment and price increases/cost pass-through should offset some potential softness (the impact of price increases on demand is worth noting). Although the situation is still uncertain, the bank believes that the current tariff situation can still be addressed through inventory hoarding, supply chain shifts, pricing, and the latest exemption policies (still awaiting clear information on industry tariffs). Apart from tariffs, Evercore ISI believes that the trend of mega capital expenditures will continue to be a key focus, especially considering the slowdown in momentum caused by Microsoft Corporation canceling data center leasing, although Alphabet Inc. Class C recently reasserted its $75 billion capital expenditure target for 2025. Macro softness and scrutiny of federal government consulting spending could affect companies that rely heavily on government spending (such as IBM, CDW, etc.). Evercore ISI stated that overall, the first-quarter performance of US IT hardware and networking stocks should be in line with expectations. Looking ahead, there are several variables to watch, including the direct impact of tariffs, macro headwinds, price increases (and their impact on demand), and whether potential inventory hoarding will cause a shift in second-quarter demand and a vacuum in demand in the second half of the year. Below are the key points for some of the companies covered by Evercore ISI: Apple Inc. (AAPL.US) Evercore ISI believes that Apple Inc.'s first-quarter performance in 2025 is expected to exceed market expectations (revenue of $94 billion/earnings per share of $1.61), but the focus will be on second-quarter guidance and how tariff impacts are incorporated. Currently, the tariff on Apple Inc. electronic products imported from China is 20%, but the US government may still impose industry tariffs on electronic products imported from China in the coming months. Assuming Apple Inc. does not adjust prices before the release of the new iPhone, but its inventory accumulation before the tariff will limit the impact on second-quarter performance, thus lowering second-quarter earnings per share forecast by 7%. Apple Inc. will have to bear higher tariff costs in the third quarter (without exemptions), thus lowering earnings per share forecast by over 10%. Afterwards, Apple Inc. is expected to raise the price of the new iPhone to offset tariffs, so the quarterly decrease in earnings per share is in the high single digits. Additionally, investors will continue to focus on Apple Inc.'s revenue in the Chinese market, iPhone revenue, and service revenue growth. Evercore ISI expects Apple Inc.'s revenue in the Chinese market to remain flat or slightly decline (pessimistic estimates of a mid-to-high single-digit decline), iPhone revenue may remain flat or slightly decline, and the service business will maintain low double-digit growth. It is worth noting that the exchange rate will be a significant positive for Apple Inc., partially offsetting factors. Evercore ISI stated that in the short term, Apple Inc.'s stock price will be driven by political factors such as the GEO Group Inc, but it is expected that it can mitigate the impact of tariffs through various strategies. The bank maintains an "Outperform the Market" rating for Apple Inc., with a target price adjusted to $250 due to a lower valuation and earnings per share. IBM (IBM.US) IBM will release its first-quarter financial report after market close on April 23rd. Evercore ISI expects its performance to roughly meet market expectations (revenue of $14.4 billion/earnings per share of $1.41), mainly driven by software and Red Hat business. Despite broader macro/tariff uncertainties, Evercore ISI believes that IBM is performing more steadily compared to its peers, as its clients are mainly Fortune 500 companies and software/consulting revenue has higher regularity. The bank believes that potential tariff impacts in its infrastructure sector should be manageable, but consulting business may experience weakness due to federal government efficiency reforms (accounting for about 5% of IBM's total revenue) and macro environmental fluctuations. The bank believes that IBM may lower its 2025 consulting business growth forecast (currently expected to be in single digits growth), but strong backlog orders, a more favorable exchange rate environment, and AI growth momentum could be positive offsetting factors. Evercore ISI pointed out that IBM management reiterated its 2025 targets at the analyst day event in February: revenue growth of over 5% at constant exchange rates, PTI profit margin expansion of over 0.5 percentage points, and free cash flow of $13.5 billion. The bank believes that these targets can still be achieved with strong performance in the Red Hat business, mainframe sales, and contributions from acquisitions. The bank maintains an "Outperform the Market" rating for IBM, with a target price of $275. Arista (ANET.US) Evercore ISI believes that Arista is expected to achieve its revenue target under extremely low expectations. The bank pointed out that the stock has recently become a consensual short targetThe decline from the beginning of the year to now has reached 34% (compared to a 11% decline in the NASDAQ 100 ETF during the same period). The bearish logic is based on its loss of market share in Meta and Oracle Corporation, especially in the backend network aspect.Evercore ISI believes that the market expects only 17% growth by 2025, falling short of the $750 million AI backend business goal. However, the bank is more optimistic, expecting to achieve this goal and achieve growth of over 20% by 2025. They have added it to their tactical "outperform" list and believe that its manufacturing in Mexico and Malaysia, with minimal impact from the 10% tariff, will result in a 2% decrease in quarterly earnings per share. Evercore ISI maintains a "top pick" rating for Arista, believing that the risk of market share loss is overestimated. They have lowered the target price from $130 to $100, reflecting a decrease in earnings per share and valuation. AFEANO (APH.US) AFEANO will release their earnings report on April 23rd, Eastern Time, and is expected to exceed market expectations. The company has always been able to handle macro fluctuations well, making it particularly suitable to hold in the current tariff/macro uncertainty. The bank expects that it will exceed market expectations driven by AI growth and the Andrews acquisition (contributing $1.1 billion in revenue and $0.06 in earnings per share by 2025). In addition, the improvement in IT/data communication fundamentals, coupled with AI support, remains strong in military/aviation business, which is expected to drive growth. Evercore ISI believes that AFEANO's first-quarter performance will be driven by IT/data communication and military aviation markets. They expect it to provide second-quarter guidance in line with market expectations. The bank maintains an "outperform" rating for AFEANO, with an unchanged target price of $88. TE Connectivity Ltd. (TEL.US) Evercore ISI points out that TE Connectivity Ltd.'s first-quarter earnings report will report expected organic growth, with revenue expectations slightly below seasonal levels in the second quarter. Investors will focus on the forward guidance provided by the company and the impact of tariffs on them and broad terminal demand. It is worth noting that a weaker US dollar will bring more than 200 basis points in revenue benefits. Looking at the terminal market, the company's strong performance in the automotive industry in Asia (especially China) may offset weakness in Europe, while the industrial market shows geographic differentiation, communication solutions continue to grow, and AI is expected to contribute $600 million in revenue by 2025. Evercore ISI concludes that despite macro and tariff uncertainties, TE Connectivity Ltd. should report better-than-expected performance, maintaining an "outperform" rating for the stock with a target price of $160. Vertiv Holdings (VRT.US) Evercore ISI expects Vertiv's first-quarter performance to slightly exceed expectations, as data points around broader data center infrastructure spending remain relatively stable throughout the quarter. The bank expects Vertiv to reiterate its 16%-18% organic growth forecast for 2025 and earnings per share forecast of $3.50-3.60, focusing on order growth and backlog performance, especially considering the high base of a 60% year-on-year growth in orders compared to the same period las... The bank expects order momentum to remain strong, but tariffs may cause some disruption. Evercore ISI maintains its long-term positive view on Vertiv, stating that it has the ability to manage tariff risks. The bank maintains an "outperform" rating for Vertiv, adjusting the target price to $100 due to a slight decrease in earnings per share (about 3%). CDW (CDW.US) Evercore ISI expects CDW's first-quarter performance to be broadly in line with expectations, with potential upside from customer pre-orders due to recent tariff announcements. The bank says that despite ongoing macroeconomic uncertainty, CDW is expected to maintain its low single-digit earnings per share growth. They believe that CDW can achieve their 2025 earnings per share target through buybacks alone, but due to unfavorable factors related to tariffs, they have conservatively lowered their 2025 earnings per share forecast. Evercore ISI maintains an "outperform" rating for CDW, with a target price lowered to $185.