Everybody loves tax cuts, right? Wrong! The recent approval of the United States corporate tax rate cut from 35% to 20% is blowing up the technology sector, especially those stocks linked to semiconductors.
Technology stocks have enjoyed several tax benefits, effectively lowering their tax rate, but moving forward this will no longer be the case. The corporate tax rate cut, approved by the United States House and Senate, will be beneficial to companies involved in the finance, telecom, consumer discretionary, and industrials sectors which fall under a high tax bracket, but this does not apply to the tech sector.
As such, investors have begun to move their money over to the sectors that will gain the most from the latest tax reform, meaning stocks are losing grip in the tech sector.
The semiconductor market appears to have been most severely affected. Prominent stocks such as Advanced Micro Devices (NASDAQ:AMD), NVIDIA Corp. (NASDAQ:NVDA), and Micron Technology, Inc. (NASDAQ:MU) have plunged nearly 7.9%, 7.0%, and 5.9% respectively since news of the tax cut was released.
This has led to further speculation that the semiconductor high, which began in late November, will soon run out. Some analysts believe that semiconductor stocks will experience a massive correction in their share prices, largely due to their hefty valuation. Investors will likely begin to pull out from tech stocks and move on to other sectors which have a greater potential for higher returns.
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