United States tariffs tied to trade imbalances, digital services taxes, and sensitive sectors like autos, semiconductors, and pharmaceuticals could create uncertainty for software and human capital management companies, analysts at UBS have highlighted.
President Donald Trump on Wednesday announced sweeping tariffs, including a baseline 10% on all imports and higher rates for specific countries like China and the European Union.
While software services firms remain largely insulated due to their domestic focus and high retention rates, information technology services companies such as Accenture PLC (NYSE:ACN),Cognizant Technology Solutions Corp (NASDAQ:CTSH), CGI Group Inc (TSX:GIB.A) and Iron Mountain Inc (NYSE:IRM) could be vulnerable due to their international exposure and reliance on affected industries, the UBS analysts believe.
Human capital management software providers, including Automatic Data Processing, Alight, Dayforce, Paycom Software Inc (NYSE:PAYC), Paychex, Paylocity, and TriNet, are broadly diversified but could face pressure from manufacturing and retail clients.
Paycom is seen as better positioned due to its mid-to-upmarket focus and limited international exposure, while TriNet faces greater risk due to its life sciences exposure and presence in smaller businesses.
Credit reporting and decisioning firms like Equifax Inc (NYSE:EFX), Fair Isaac Corporation, and TransUnion are largely shielded from direct tariff impacts due to their data and analytics-driven models.
“That said they serve cyclical end markets including autos, which have been specifically targeted but likely remain a small part of overall mix,” analysts wrote.
In terms of staffing firms, the analysts highlighted ASGN and Robert Half International, which may struggle due to macroeconomic uncertainty and slowing labor demand, particularly ASGN with its federal sector reliance.
Vertical software providers such as Constellation Software Inc. (TSX:CSU), Clearwater Analytics, Intapp, SS&C Technologies, and Thomson Reuters (NYSE:TRI) are expected to be least affected, the analysts believe.
This is due to their services-based client focus and minimal trade policy exposure, though Constellation Software's European presence warrants monitoring.
Analysts ‘selective’
In light of the growing uncertainty from potential shifts in trade policy, specifically tariffs, the analysts are being selective about which companies in their coverage they favor.
They pointed to Constellation Software, Dayforce, Paycom, SS&C Technologies and TriNet Group as their top picks.
Meanwhile, they repeated their ‘Sell’ recommendation on staffing firms ASGN and Robert Half International due to heightened macro sentivity and a slowing labor market.