It’s no secret that Big Tech and government regulators have long been at odds. Antitrust issues and the spread of misinformation are the two main concerns that governments the world over have scrutinized these tech behemoths for, ending, in some cases, in billions of dollars of fines and heavy restrictions.
Today, however, we’re seeing the U.S. step up (which is atypical for the country, given that it’s known for its relatively lax approach to antitrust and competition regulation), with four of the top tech stocks facing Congress. (Source: “Four Tech Giants Gird For Tough Hearing in House Antitrust Probe,” BNN Bloomberg, July 28, 2020.)
The results could very well upend the stock market.
Now, I need to be clear here: the results of this specific hearing are not, on their own, going to alter much. Rather, this is another edition in the long debate about just how governments are supposed to regulate Big Tech.
Remember that we’ve already seen people like Mark Zuckerberg, the preternaturally unlikable CEO of Facebook, Inc. (NASDAQ:FB), take the stand at a Congressional hearing, with memes and jokes being the main byproducts.
But this time may be different.
That isn’t to say we’ll see any meaningful legislation or regulations immediately after the talk (especially from the Donald Trump administration, a famously anti-regulation White House), but it could lead us to a radically transformed stock market in a few years time.
Consider that politicians like Bernie Sanders and his political allies in Congress have long been clamoring for Big Tech to be broken up.
As you’d expect, were this to occur, share prices of these tech stocks would likely tank. And the resulting void in the market would allow for more startups to usurp some of their market cap, creating a vastly different stock market than the one we see today.
Of course, that possibility is a long way off, if it ever does happen. But the conditions have never been better for this type of radical change to take place.
For instance, neither political party is particularly happy with the four major tech stocks: Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOG), and Facebook are all pretty much derided by political operatives of all stripes.
Chart courtesy of StockCharts.com
Amazon has been the recipient of more than one angry tirade from the left, with Sanders in particular often going after the company for its treatment of its workers.
To be fair, Amazon CEO Jeff Bezos (the world’s richest man) has hardly made many friends on the right, either (something that he and Zuckerberg share in common: both are nearly universally disliked). Bezos has managed to aggravate many on the right due to his ownership of the center-left-leaning The Washington Post.
While I doubt this Congressional hearing will impact Amazon stock in the near term, any sort of attack on the company’s e-commerce stranglehold would naturally harm its future share price.
Facebook stock has already been hit several times, due to a mass exodus of advertisers over complaints about how the social media giant handles the news.
Many still blame Facebook (at least many in the Democratic Party) for its role in helping get Trump elected president. On top of that, there’s the “fake news” phenomena that many accuse Facebook of aiding. And, of course, there’s the Russian bot scare that dovetailed into the Russia-Trump attack line of the Democrats.
Whatever your political position on these issues, without a doubt there are a lot of possible avenues of attack that politicians could take to chip away at Facebook, which in turn could hurt FB stock.
Facebook, Inc. has also come under scrutiny for its antitrust behavior, buying up competitors like Instagram the moment they begin to threaten the company’s hold on the social media market. Facebook has about 2.5 billion users, making it the most far-reaching social media company in the world by a mile.
Like Amazon stock, Facebook stock would naturally be under fire if regulatory action is taken against it. And, even more so than Amazon, there’s plenty of room for a social media startup to come in and begin eating away at Facebook’s hold on the market if the company is slapped with regulations.
With Apple stock and Google stock, however, it’s a little trickier.
Apple is being questioned over its “App Store,” with investigators concerned that the company has too much power to elevate its own apps over those of its competitors, all the while taking a pretty big chunk of the profits from any app on its system.
Google stock is also at risk as investigators look at how the company deals with online advertising, with Google having faced concerns over data privacy and monopoly potential.
Just over a year ago, the European Commission (a body of the European Union) fined the company €1.49 billion, so there is precedent to attack the tech giant on antitrust grounds. (Source: “Antitrust: Commission Fines Google €1.49 Billion for Ausive Practices in Online Advertising,” Europa, March 20, 2019.)
While a fine from U.S. regulators is unlikely (and wouldn’t impact Google stock much anyways), regulations and other impositions could affect the company’s future.
What makes Apple stock and Alphabet stock different from the others is that their companies’ CEOs, Tim Cook and Sundar Pichai, aren’t nearly as roundly disliked across the political spectrum.
Pichai did ruffle some feathers when he didn’t show up to a previous Congressional hearing, but neither he nor Cook maintain the same public presence that Zuckerberg and Bezos do.
These are all very serious issues facing these tech companies. Depending on how this all turns out, it could radically alter the future of tech stocks in the United States. Again, that wouldn’t happen overnight, but if the companies mess up during the Congressional hearing, we could expect politicians to pounce, as many of them have an axe to grind against these top tech stocks.
Which isn’t to say that AMZN stock, FB stock, GOOG stock, and AAPL stock are all going to be suddenly destroyed by the hearing. But this could be just the beginning—or, I should say, the continuation of a long road toward a possible redefining of these top tech stocks and the positions they occupy in the stock market.
Furthermore, this is all taking place during the COVID-19 crisis, a time of upheaval, when major change doesn’t seem so crazy anymore.
All the pieces are falling into place for a major shake-up of how the top tech stocks do business.
Does that mean it will happen? No. Does that make it likely? I guess not. But it’s certainly a real possibility, and one that would profoundly affect investment portfolios, maybe for a long time. It would certainly leave the stock market irreversibly changed.
All that being said, now is the time to focus closely on the political machinations surrounding these top tech stocks and to plan accordingly.
Especially during a time of panic, AAPL stock, AMZN stock, FB stock, and GOOG stock are still among the top tech stocks around. They’re big and stable and have a lot of room yet to grow.
Still, if the winds of change are indeed a’swirling, then we can expect to see many of these top tech stocks be radically altered.