Donald Trump Could Hammer Big Tech Stocks
These big tech names have been investor favorites for years: Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX) and, Alphabet Inc (NASDAQ:GOOG), otherwise known as Google.
But, while these names—known as the “FANGs”—have been market darlings, a Donald Trump presidency could be a big problem for them.
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These technology stalwarts are universally owned by almost every fund where “Big Tech” enjoys a majority allocation. Among the general public, you would be hard-pressed to find anyone who hasn’t heard of these individual names. The FANGs are as much new-age corporate Americana as The Coca-Cola Co (NYSE:KO), Ford Motor Company (NYSE:F), Xerox Corp (NYSE:XRX), or Polaroid were a couple generations ago. The impact of the FANGs in this digital age is unmistakable.
Their long-term performance isn’t too shabby, either. Facebook has risen over 588% from its post-initial public offering (IPO) lows back in 2012. Amazon.com is up 174% in the last two years alone. Netflix boasts a five-year trough-to-peak return of over 1,600%! Google, meanwhile, has appreciated 186% from its 2012 trough lows from the $280.00-per-share range. Not only have returns been mesmerizing, except for a few harrowing post-earnings trade sessions, volatility has been tame and price fluctuations have been orderly.
This is not how Big Tech is supposed to trade.
But could the Trump administration take a tougher stance against Silicon Valley companies, capping innovation and growth initiatives that ultimately drive earnings growth? Perhaps.
Even before his inauguration, Donald Trump has met privately with several business leaders to find ways of bringing back jobs domestically. Notably, Trump was able to grant a $7.0-million incentive package to convince Carrier to save 800 domestic manufacturing jobs from escaping to Mexico. He’s also met with big defense leaders to extract concessions to drive down spending costs, pitting contractors against each other to find price efficiencies.
Twitter has been leveraged to galvanize public opinion and spotlight the absurdity of out-of-control government spending programs, seemingly decoupled from private sector expectations. Keep in mind that these heavy-handed negotiating tactics have occurred with white-collar corporate America, in which Trump and his cabinet are generally ideologically aligned.
However, Silicon Valley firms may not be so “lucky.” Trump’s coercive negotiating proclivities could get even more extreme, owing to differences in ideological orientation. Setting aside how Big Tech overwhelmingly backed Hillary Clinton regarding election campaign funding, Trump’s nationalist agenda is completely opposed with Big Tech’s globalist and job-outsourcing agenda.
Look no further than Big Tech’s vocal support of America’s “H-1B Visa” program. This program allows U.S. employers to employ foreign workers in select sectors. For years, the tech industry has lobbied to expand the program, which is now facing scrutiny under Trump’s “America First” policy to bring back jobs to American workers. Would-be Attorney General Jeff Sessions has long sought to curtail the program, and has introduced legislation to make visas less available to tech giants such as Infosys Ltd ADR (NYSE:INFY) and Google. (Source: “Tech Industry Work Visa Program Could Be Clipped Under Donald Trump,” Fortune, November 22, 2016.)
Ideologically speaking, while Trump works vociferously to bring jobs back to America, Silicon Valley—not just FANGs—is the main purveyor driving workplace automation, leading to traditional labor replacement. Companies such as Uber and Microsoft Corporation (NASDAQ:MSFT) are already on the cusp of introducing technologies which put millions of American driving and sales jobs at risk.
Big Tech is also the traditional bastion of progressive leftist ideology not necessarily aligned with GOP values. Many examples of anti-Trump bias have surfaced since Trump emerged as a serious candidate for public office. Whether it’s Facebook suppressing conservative viewpoints and shutting down pro-Trump accounts altogether, or Google making available a “Chrome” extension filtering out Donald Trump content, or the The Washington Post—owned by Amazon CEO Jeff Bezos—emerging as one of Trump’s most vicious critics, the systemic bias is obvious.
Big Tech clearly does not support Donald Trump’s world view, and has actively worked to undermine his campaign and influence every step of the way.
What kind of blowback Big Tech encounters from a Trump administration, by way of government contract allocation and pro-tech policies, remains an open question. As Donald Trump is, above all, a pragmatist, the two sides may yet find common ground moving forward. But early returns aren’t encouraging, and investors should be cautious that ongoing turmoil could shutter the very growth engine that allowed Big Tech to thrive under the previous administration.
And this would be decidedly market-negative.
