Strong dollar threatens big tech and AI growth, casting shadow over S&P 500 rally

The dollar’s rise is threatening to reclaim S&P 500 tech and AI stocks’ two-year profit growth. So far, the US currency has risen by almost 7% from September, drawing closer to its highest levels since November 2022.

Analysts have raised concerns that the dollar’s growing strength may dampen multinational companies’ earnings outlook. Howard Du, currency strategist at Bank of America, even remarked:

It’s really the unexpected rally in the dollar that causes the most damage to corporate bottom lines.

~ Howard Du

Dollar’s rise threaten multinational companies’ bottomline 

The tariff delays for Canada and Mexico have eased pressures on the US dollar, allowing the currency to continue appreciating to its highest level in two years.

Many analysts have also cited Donald Trump’s economic policies as reasons for the dollar’s rise. However, S&P 500 multinational companies fear that the growing dollar could undermine their earnings and eat into their profits, especially since a strong dollar lowers export demand and the value of overseas gains.

Patrick Fruzzetti, portfolio manager at Rose Advisors, believes that the dollar’s strength could jeopardize companies’ profits and cause strain on some of their businesses.

Goldman Sachs even reported that almost 40% of S&P 500 corporations discussed “FX” in their earnings calls, with Apple particularly bracing for future economic pressures. Moreover, investors are worried about Amazon’s Q1 guidance, which slightly fell short of expectations due to currency-related pressures. However, overall earnings for the previous quarter were otherwise solid.

The dollar’s strength has contributed to an S&P 500 recession before 

During Trump’s first term in 2018, the dollar at one point jumped by 10%, which was followed by a 20% drop in S&P 500 gains that same year. In 2014, when the dollar grew by over 25%, the S&P 500 companies plummeted soon after, and the same happened between 2021 and 2022.

If history repeats itself, the S&P 500 market may be in trouble as analysts project that the dollar will continue to appreciate and maintain its strength throughout 2025.

Aside from the strong dollar, the US’s 10% tariff on all Chinese imports is expected to hurt the Magnificent Seven stocks. Strategas’ Ryan Grabinski believes any tariffs on China and any retaliation are “most concerning” for these companies’ revenues. Tesla already has a 20% revenue exposure to China, while Nvidia and Apple have about 16%.

Gina Martin Adams, chief equity strategist at Bloomberg Intelligence, also says the tariffs could cause multinational companies to relocate back to the US or find other trading partners unaffected by them. 

She added that if the dollar continues to rise, it could hurt Nvidia, Alphabet, Amazon, Tesla, and Broadcom shares, especially because they are more susceptible to currency changes than other companies.