As calls to regulate or break up US tech giants increase, Wall Street sees a resemblance to past situations in which massive companies faced years of scrutiny and difficulty.
Senator and presidential candidate Elizabeth Warren said recently that Facebook, Google, Amazon, and Apple should be split up to increase competition.
Some experts now say the companies are in for an extended rough period. One money manager explained to Business Insider why he stopped buying those four stocks entirely.
With Big Tech squarely in the government’s crosshairs, some on Wall Street think that years of pain are coming for social media companies like Facebook and other longtime market favorites like Google.
Pressure on such firms has been ratcheted up following Senator and presidential hopeful Elizabeth Warren’s recent calls to break up Amazon, Facebook, Apple and Google. Other candidates are likely to go after the companies as well, leading to new regulations that these experts say could send costs climbing and drive down their profit margins and stock multiples.
“When government regulation starts to look at a sector, it just looks at the biggest ones,” Michael Antonelli, a market strategist at $130 billion Robert W. Baird Private Wealth Management, told Business Insider by phone. “These stocks are going to have very, very severe headwinds.”
The current situation in mega-cap tech reminds experts like Antonelli of the antitrust issues that Microsoft faced from 1998 to 2001. The software giant was accused by the Department of Justice of holding a monopoly and engaging in anti-competitive practices.
A judge initially ruled that Microsoft be broken into two separate entities, and only after a long appeal process did the company finally reach a more palatable settlement. But Microsoft’s stock struggled for years, failing to surpass its early-2000 peak until 2016.
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There are also flashbacks to the scrutiny faced by big banks after the 2007-08 financial crisis. It was their dangerous lending and investing behavior that absorbed much of the blame after the economic meltdown. Some big-name bank stocks still haven’t fully recovered their losses from that period. Even after the crisis ended, tighter regulations restricted their growth for years.
This pessimism carries potentially grave implications for the stocks market. After all, the four giant companies targeted by Warren are among the market’s biggest winners over the decadelong bull market.
But while Warren is singling them out because of their size and reach, Stifel Nicolaus money manager Chad Morganlander says other tech companies are also in trouble.
Morganlander is specifically referring to other social media stocks like Snap and Twitter, which he says might struggle as both the government and the general public get more critical of how the companies gather and handle their personal data.
“The consumer backlash as well as regulatory …read more
Source:: Businessinsider – Tech