Could The Surging Dollar Put A Stop To Big Tech's Bull Run?

The US dollar has a well-earned reputation as one of the world's strongest currencies, but experts are beginning to wonder if the dollar's strength could put a stop to Big Tech's bull run.  The greenback has been surging since November and  Bloomberg reported recently that it's up nearly 7% since September.

A strong dollar is a good thing in principle, but when the world's reserve currency becomes too strong, US consumer goods and equities can become prohibitively expensive around the globe. For example, the 7% surge noted by Bloomberg is great news to Americans traveling abroad because their money goes further. However, it's a 7% price increase on American products for everyone else.

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It's not just consumer goods that could suffer. Big Tech companies like Meta Platforms (NASDAQ: META) and Amazon (NASDAQ: AMZN) depend heavily on ad revenue. When overseas clients find themselves paying more for the same ads, they may scale back their purchases. If the dollar retains its current strength for the entire quarter or a significant portion of 2025, the combined pullback in international revenue could threaten Big Tech's earnings outlooks. 

Bank of America BAC currency strategist Howard Du told Bloomberg, "It's really the unexpected rally in the dollar that causes the most damage to corporate bottom lines." Bloomberg quoted Goldman Sachs GS as saying 40% of the S&P 500 have referred to "FX," which is shorthand for the foreign exchange market, as a profit deterrent on their most recent earnings calls. Goldman also noted that Apple APPL expects the FX issue to continue dragging down profits.

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Patrick Fruzzetti of Rose Advisors added, "Dollar strength could very much hurt these companies even absent tariffs and weigh on parts of their businesses." There is also reason to believe that the strong dollar isn't going anywhere anytime soon. Paula Comings, who runs US Bancorp's USB FX Sales, told Bloomberg that most of her colleagues believe the dollar "is going to stay higher and persist into 2025."

Bloomberg's index tracking Magnificent Seven stocks shows they are currently priced at "30 times projected profit for the next 12 months." This is important for two reasons. First, the Magnificent Seven is very tech-heavy. Second, the current rate is much higher than when Bloomberg's index reported stocks being 20 times their projected profit in 2022. It's also much higher than the S&P 500 ratio of 22 times projected profit.

Although the implementation of the tariffs has slowed the dollar's rise to some extent, the Fed's current pause on interest rate cuts has buoyed the greenback to some extent and helped it remain strong.  Another offshoot of the strong dollar is that it has diluted the effect of Trump's tariffs on many imports.  However, reciprocal tariffs could also take a bite out of Big Tech profits.

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Ryan Grabinski, director of investment strategy at Strategas told Bloomberg that Tesla (NASDAQ: TSLA) derives 20% of its revenue from China, while Nvidia (NASDAQ: NVDA) and Apple are not far behind at nearly 16%. This explains why Big Tech is casting a wary eye toward the future concerning reciprocal tariffs. "Chinese tariffs and any subsequent retaliation from China is most concerning for the market from a revenue standpoint," Grabinski said. 

Bloomberg Intelligence Chief Equity Strategist Gina Martin Adams also noted that the threat of tariffs is higher now because foreign companies are doing a lot more business in the US than they were in Trump's first term. "The dilemma is whether multinational companies will reshore into the US or look for other trading partners and revenue destinations instead," she said. 

However, companies relocating to the US would also be negatively impacted by a strong dollar. Converting employee salaries, renting office space and many other operating costs would rise because of the dollar's strength. That means the dollar's current strength poses a threat beyond Big Tech. Investors need to take note of this and plan their moves for 2025 accordingly.

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