Why Tech Stocks Remain a Compelling Buy Amid Tariffs and AI Uncertainty

Clyde MorganSunday, Jun 8, 2025 8:37 am ET
33min read

The tech sector has long been a barometer of innovation and growth, yet it now faces dual headwinds: geopolitical tariffs and lingering uncertainty around AI's long-term impact. Despite these challenges, hyperscalers like

Microsoft
(MSFT), Amazon (AMZN), and NVIDIA (NVDA) are proving their resilience through structural advantages in AI infrastructure, cloud dominance, and sustained capital expenditure (capex). Their Q1 2025 earnings underscore a compelling case for tech stocks as critical portfolio holdings in this era of disruption.

The Structural Edge of Hyperscalers

The term “hyperscaler” encapsulates companies that can scale infrastructure and services globally while maintaining operational agility. Microsoft, Amazon, and NVIDIA exemplify this through three core strengths:

  1. AI-Driven Revenue Growth:
  2. NVIDIA's data center revenue hit $22.6 billion in Q1 2025, up 23% sequentially and 427% year-over-year, fueled by generative AI demand.
  3. Amazon's AWS revenue rose 17% YoY to $29.3 billion, with its Bedrock platform and quantum computing initiatives (e.g., Ocelot chip) locking in enterprise customers.
  4. Microsoft's Azure grew 33% YoY, contributing to a 20% rise in Intelligent Cloud revenue.

These companies are not just selling hardware or cloud space—they're owning the AI stack, from chips (NVIDIA's Hopper) to enterprise software (Microsoft's AI Enterprise 5.0). This vertical integration creates moats that tariffs and geopolitical noise cannot easily breach.

  1. Sustained Capex in AI Infrastructure:
    Tariffs on semiconducters to China and other markets have forced companies to rethink supply chains, but hyperscalers are using this as an opportunity to double down on AI-centric investments.

  2. NVIDIA's $4.5 billion charge for U.S. export restrictions to China was overshadowed by its Blackwell platform launch, which supports trillion-parameter AI models. Microsoft deployed “tens of thousands” of Blackwell GPUs, with plans to scale to “hundreds of thousands,” underscoring its commitment to OpenAI partnerships.

  3. Amazon's $113.9 billion in operating cash flow (TTM) funds its Project Kuiper satellite network and AI tools like SageMaker Unified Studio, ensuring it stays ahead in cloud and edge computing.

While tariffs may raise short-term costs, the long-term payoff of owning AI's backbone justifies capex.

  1. Cloud Dominance as a Hedge Against Tariffs:
    Cloud services are now strategic necessities for businesses, not optional upgrades. Microsoft's Intelligent Cloud segment grew 21% YoY in Q3 FY2025, while Amazon's AWS remains the top public cloud provider.

  2. Microsoft's gross margin dip in cloud (to 71%) reflects scaling costs, but its 14% rise in operating income to $30.6 billion shows margin resilience.

  3. Amazon's Prime Video and Alexa+ features diversify its revenue streams, reducing reliance on any single market.

Cloud dominance insulates hyperscalers from trade barriers because their services are embedded in global enterprise workflows.

Why Uncertainty Around AI Isn't a Threat—Yet an Opportunity

Critics argue AI's ROI remains unclear, but hyperscalers are turning this into an asymmetric advantage:

  • Microsoft's AI Enterprise 5.0 integrates NVIDIA's GPUs and tools like Azure AI Studio, enabling enterprises to deploy models at scale. This reduces AI's “black box” risk, making it more accessible.
  • NVIDIA's Quantum and Spectrum X800 networking solutions optimize AI infrastructure for latency-sensitive industries like healthcare and automotive.

These moves signal that AI is no longer a moonshot—it's a core competency. Even if near-term demand slows, hyperscalers' lead in infrastructure ensures they'll capture the upside when adoption accelerates.

Valuation: Undervalued Growth Prospects

Despite their Q1 outperformance, tech stocks remain underappreciated. Take NVIDIA's 10-for-1 stock split in June 2024, which expanded retail investor access while signaling confidence in its valuation. Microsoft's diluted EPS rose 10% YoY to $3.30, yet its price-to-earnings ratio (P/E) of ~30 trails its growth rate. Amazon's shares, though volatile, trade at a P/E of ~35, aligning with its 9% sales growth.

Investors should view dips as buying opportunities. Hyperscalers' free cash flow (Amazon's $25.9B TTM, Microsoft's $24.7B net income) and shareholder returns ($9.7B returned by Microsoft in Q3 FY2025) further solidify their appeal.

Conclusion: Tech Exposure Is Non-Negotiable

Tariffs and AI uncertainty are real, but hyperscalers have built defensive moats through AI infrastructure, cloud dominance, and relentless capex. Their Q1 results—NVIDIA's 262% YoY revenue jump, Microsoft's 16% revenue growth, and Amazon's 9% sales rise—prove they're outperforming macro headwinds.

For investors:
- Buy the dip: Tech stocks' volatility creates entry points into companies with structural advantages.
- Focus on AI leaders: NVIDIA's chip dominance and Microsoft's cloud-AI integration are irreplaceable.
- Avoid short-term noise: Tariffs and geopolitical risks are manageable; AI's long-term trajectory remains bullish.

In an uncertain world, hyperscalers are the safest bets for growth.