On Tuesday, the Justice Department confirmed a Wall Street Journal report that they were launching an antitrust “review” of big tech companies. Facebook (FB), Amazon (AMZN), Apple (AAPL) and Google (GOOG, GOOGL) are all expected to come under scrutiny. So far, the stocks concerned have barely registered the news. All four have traded higher over the last few days, but the question for investors is which if any of them will be adversely affected in the future.
The first thing that has to be considered is that “antitrust,” while the stated reason for the investigation, may not be the main concern here. Color me cynical if you will, but the evidence to date indicates that any announcement from this justice department should be viewed through a political lens.
I am not saying that this is the first time in U.S. history that has been true, but when the decidedly right-leaning Wall Street Journal sees fit to put a story about a legal investigation of corporations in its “politics” section, it tells you all you need to know.
Republicans have traditionally been pro-big business, and the idea of a Republican administration punishing a company for its success (which is essentially what an antitrust investigation is) would, until quite recently, have been ridiculous.
Still, as we are so often told, this is Donald Trump’s party, and, love it or loath it, that means that there are no longer any sacred cows.
It also means that any political decision will have a populist tinge, and that is the key to understanding the potential impact of this investigation.
There is a feeling among some on the right of U.S. politics that all these companies have an inherent left-wing bias. To me, who was raised in the European tradition of a “left-wing” that was anti-capitalist and pro public ownership of business, the idea of massive corporations being left-wing is hard to grasp.
Within the American political spectrum though, the statements, and often actions, of these companies do suggest a more liberal tendency. That makes for a core group of people who would welcome restrictions, but it doesn’t mean that restricting those businesses would be popular overall.
As much as people like to grumble about Facebook, Amazon et al, the very fact that they are all so dominant in their fields suggests that people like their products and services. Amazon, for example, has been the most popular company in America for many years, and while Facebook and Google may not be as widely loved, they dominate their industries because people use their products.
And that is not because they have no choice.
Walmart (WMT) may have something to say if you suggest that Amazon has a monopoly on online retail, Twitter (TWTR), Snapchat (SNAP) and others are proof that there is not just one social media company, and there is no shortage of alternative cellphone brands.
If this were simply a legal case, then popularity wouldn’t matter at all but, as already mentioned, it isn’t. It is political, and that means that the companies concerned can leverage their popularity to lessen the potential damage done to their business by government interference.
Logically then, it looks like, as is so often the case, the market has it right and the hand-wringing chattering classes have it wrong. No company likes bureaucratic intervention and as we have seen this week with Facebook and several times with Google overseas, censure and fines are possible whatever the popularity of a company’s product.
What we have also seen though, is that the market can just shrug those things off and focus on growth and profitability.
Investors should therefore not be too worried by the fact that the Justice Department is investigating these companies. You may or may not believe that they have done anything wrong, and the investigation may or may not be able to make a coherent case that they have done so, but that isn’t the point. Ultimately, whether to punish them, and if so in what way, will be a political, not legal or economic decision.
That means that the very dominance and popularity that prompted the investigation in the first place will become an asset and limit the impact.
When making investment decisions investors should therefore ignore the politics and focus on the profits.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Martin Tillier
Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.
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