The stock market carnage in the tech industry shows it isn’t immune to deepening fears about the spread of coronavirus.
Apple, Facebook, Google, Microsoft and Amazon lost more than $238 billion in value yesterday, according to CNBC’s Jessica Bursztynsky, as part of a broader market dive and concerns about global economic havoc as the virus mushrooms beyond China.
Apple is the tech giant perhaps most exposed to the economic threat of coronavirus because much of its supply chain is in China, said Tom Forte, an equity analyst at D.A. Davidson & Co. The company also relies on selling its smartphones to Chinese consumers.
But Wall Street is more broadly concerned that coronavirus will become rampant in multiple countries and continents simultaneously, Forte said. Such a pandemic would severely impact the global business of Silicon Valley firms.
If it does become a pandemic, then the risk for disruption is far greater.
Forte says
“If it does become a pandemic, then the risk for disruption is far greater,” Forte told me.
The stock plunge was at odds with the message emanating from Washington, as President Trump and his allies sought to reassure investors that they had the situation under control.
But it’s clear Wall Street is waking up to a more sobering reality that coronavirus could affect everything from the availability of goods for Amazon Prime Day to spending on digital Facebook and Google ads.
Apple said last week that the coronavirus would cause it to miss its revenue goals in the current quarter. The company warned investors that iPhone production was resuming more slowly than expected even as Chinese factories reopened, and it also saw a dampening in consumer demand for its products in the country.
Amazon has said little publicly about how it anticipates coronavirus will impact its bottom line. (Amazon chief executive Jeff Bezos owns The Washington Post).
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But Forte estimates that more than 50 percent of products sold on Amazon are sourced out of China, including consumer electronics, clothes and toys. If factories in China aren’t back at full capacity soon, it could have a ripple effect on major shopping days on the platform, such as Prime Day, Forte warns.
Amazon sent urgent emails to brands on Wednesday about Prime Day, signaling that it has begun worrying about inventory for the event, The New York Times reported last week. Amazon has also been making bigger orders of Chinese-made products that have already been shipped to the United States. Some Amazon suppliers have scaled back advertising on the platform so they don’t run out of products too fast.
Meanwhile, Facebook and Google are more insulated from the coronavirus headwinds in China because of their other problems there. The Chinese government has largely blocked them from offering their services in the mainland over censorship concerns.
However, Forte said the companies’ stock dive yesterday reflected growing jitters that a potential coronavirus pandemic could lead to a recession. Traditionally, businesses spend less on advertising during recessions, which could affect a key piece of their business.
The recent increase of coronavirus cases in South Korea was particularly a harbinger of the potential troubles to come because it’s a key market for tech product sales, Forte said. Other countries where instances of the virus were reported, such as Iran, are relatively smaller.
