about 3 years ago • 3 mins
After a year in which the biggest US tech companies’ shares have risen by some 44% on average, it may seem counterintuitive to think of them as troubled. But if the last few months have taught us anything, it’s that even giants can fall when hit with the rulebook.
✍️ Connecting The Dots
Back around the year 2000 – when General Electric was the world’s most valuable company – investors celebrated conglomerates like Siemens and DuPont whose sprawling businesses put them at the forefront of global innovation. But times change – and as the old-school titans sold off segments and narrowed their focus, emerging and expanding technology companies took their place at the top.
Modern monsters like Amazon, Apple, and Google parent Alphabet (as well as others not starting with “A”) have branched way out beyond their initial spheres of shopping, hardware, and advertising into cloud computing, media, autonomous vehicles, and more. Now, however, that expansion has – according to competition regulators – led to Big Tech becoming too powerful. Besides having the ability to treat customers and rivals unfairly, the authorities argue that massively influential online platforms aren’t currently subject to an appropriate level of accountability.
Regulators have a couple of tools at their disposal to stop things from going too far. Introducing new rules is one way to limit tech companies’ power, and forcing them to break up is another. The hope is that new laws will help protect citizens from online harms and maintain healthy levels of competition and innovation – with greater choice also ultimately good for consumers. Forced breakups, meanwhile, would make synergistic parts of a business (like Facebook and WhatsApp or YouTube and Google) compete against each other instead – thereby reducing both their collective and their individual influence.
1. Tech is too big to fail.
Big Tech’s now arguably too widespread to live without. Taken together, these companies have changed the behavior of entire populations. The coronavirus pandemic’s helped prove that: Amazon’s retail business has delivered essential goods to homebound customers, while Alphabet and Microsoft’s cloud computing businesses have been crucial in facilitating the move to remote working. And as far as social media’s concerned, ongoing concerns about election manipulation should tell you all you need to know about such platforms’ importance.
2. Regulatory risk is a win-win for investors.
Whichever direction authorities’ interventions end up heading, tech investors will probably see it as a win. Breakups can help unlock extra value for which firms aren’t currently being rewarded: some, for instance, think Facebook and Instagram would be worth cumulatively more if separated. And if tech companies don’t have to make significant changes after all, then holding onto their shares will likely position investors for profit as further earnings growth drives prices to ever-greater highs.
🎯 Also On Our Radar
Cryptocurrency exchange Coinbase filed papers for an initial public offering late last week as the price of bitcoin rose above $20,000 to its highest-ever level. Some believe bitcoin’s surge is due in part to traditional investment firms moving more money into cryptocurrencies – and if those same investors pile into Coinbase’s shares when they become publicly available, it could provide still further support for bitcoin’s price.
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