Big Tech Faces Anti-Trust Scare: 5 Smaller Choices
Zacks Investment Research | Jul 23, 2019 09:20PM ET
On the afternoon of Jul 23, the U.S. government finally revealed that it was looking into the alleged anticompetitive practices of the country’s largest tech companies. Earlier in the day, senior officials of the FAANG companies, but for Netflix (NASDAQ:NFLX) , fielded probing questions during separate Congressional hearings.
Shares of tech majors still remained unscathed at the end of the day’s trading. But the tide turned post Tuesday afternoon’s revelations from the antitrust investigation. As a result, shares of major tech firms declined in after-market trade with Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) emerging relatively unscathed.
The investigation against these tech giants is likely politically motivated. However, investors would be prudent to stay away from these market favorites for the time being. Then again, tech continues to be an evergreen investment theme, which is why it would make greater sense to invest in smaller companies from the sector.
Department of Justice Unveils Concerns
On Tuesday afternoon, a Wall Street Journal report surfaced claiming that a major investigation on the conduct of major tech companies was underway at the Department of Justice (DoJ). Only minutes later, the department confirmed the investigation, stating that its antitrust division was examining if and how “market-leading online platforms have achieved market power.”
According to the DoJ, its major concern was that if such charges were true, these practices may have “reduced competition, stifled innovation, or otherwise harmed consumers.” The DoJ added that if infringement of competitive laws had indeed occurred, “the Department will proceed appropriately to seek redress.”
Following the hearings on Capitol Hill, shares of big tech players had closed the day relatively unscathed. Shares of Facebook (NASDAQ:FB) and Apple (NASDAQ:AAPL) ended the day’s trading flat while Alphabet (NASDAQ:GOOGL) notched up marginal gains. Only shares of Amazon (NASDAQ:AMZN) declined, losing 0.5%.
But the tide turned after the antitrust investigation revelations. Shares of Amazon, Alphabet and Facebook lost more than 1% in after-market trading. Additionally, Apple and Microsoft, the biggest tech firm in terms of market value lost less than 1% during this period.
Investigation Unlikely to End Quickly
Big Tech investors were concerned after the investigation revelations while smaller competitors, including companies like Yelp (NYSE:YELP) , sounded jubilant. Former members of the Justice Department revealed that the DoJ had been scrutinizing Big Tech for at least a decade. And some analysts think these companies will emerge largely unscathed.
Other experts believe the investigation is politically motivated since the antitrust law hasn’t changed in two decades. But investors should be concerned ahead of crucial earnings results over this week and the next. This is because Big Tech is a favorite adversary in the run-up to next year’s Presidential elections.
Our Choices
The current antitrust investigation is possibly politically motivated ahead of next year’s crucial elections. However, it does place a cloud on the prospects of major tech firms, since such investigations are unlikely to be completed in a hurry. In such an event it would make sense to seek smaller alternatives from a sector which retain immense potential. However, picking winning stocks may prove to be difficult.
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