Three Tech Stocks Feeling the Heat from Higher Interest Rates
With the Federal Reserve maintaining a patient stance on interest rates, growth investors are closely watching how higher borrowing costs could impact tech and communication services stocks. A recent soft jobs report has intensified focus on financing conditions, particularly for companies dependent on easy access to capital. This article highlights three rate-sensitive growth stocks that could face significant challenges in this macroeconomic environment.
Sanmina (SANM), a global contract manufacturer with a market cap of US$12.3 billion, is heavily exposed to financing costs due to its capital-intensive electronics manufacturing model. The company generates about US$11.0 billion from integrated manufacturing solutions and US$1.9 billion from components, products, and services. Sanmina's vertical integration plans, including expansion into AI racks, high-tech PCBs, and liquid cooling, could be affected by shifts in interest rates, potentially impacting future margins.
Applied Digital (APLD), which builds and operates high-performance computing and AI-focused data centers, is another company vulnerable to financing conditions. With a market cap of US$7.4 billion, Applied Digital relies on heavy upfront capital for its AI and HPC buildout. Long-term leasing agreements with CoreWeave, totaling $7 billion in contracted revenue, provide a predictable revenue stream. However, any changes in borrowing costs or discount rates could significantly affect the valuation of these long-dated cash flows.
Globalstar (GSAT), a provider of mobile satellite connectivity and IoT tracking services, is also rate-sensitive due to its significant capital expenditures on next-generation satellite infrastructure. With a market cap of US$10.8 billion, Globalstar's heavy investment in infrastructure upgrades could pressure free cash flow and net margins, especially if subscriber or usage growth falls short of expectations. The company's ability to fill new capacity quickly will be crucial in determining whether higher-rate funding translates into stronger long-term returns.