The Government Versus Big Tech: Are Your Stocks in Danger?
In the DOJ’s recent lawsuit against Google, the government claims the company has used unfair practices to stay the dominant online search engine and act as “a monopoly gatekeeper of the internet.” Will this lawsuit cause tech stocks to plummet?
What Is the Case About?
This case asserts that by paying Apple billions to be the default browser on iPhone and iPad, and making sure Android devices come preinstalled with Google, the tech giant has established an unfair monopoly. On the other hand, Google says that people can choose to use whichever browser they want, including Bing, Yahoo! and Baidu. According to Google, many of its products are simply very popular.
Should You Worry About Big Tech Stock Prices?
Before you panic and start selling tech stocks, there are a few things you need to remember. First, this case isn’t a surprise to most investors. Antitrust accusations have been hovering around big tech companies for a LONG time, and that hasn’t stopped investors from backing these lucrative businesses.
Second, this is not the first lawsuit filed against a big tech company. Remember Microsoft, the developer of arguably the most popular operating system ever? Roughly the same situation happened in 1998 when the DOJ sued Microsoft (unfair monopoly practices vs. simply making a product that consumers prefer) and tried to split it into two companies. The case went pretty much nowhere, and the DOJ eventually settled with Microsoft to get it to adopt some changes.
Finally, lawsuits take time. This one isn’t going to be over anytime soon. In fact, some analysts suspect the DOJ’s action may be primarily political instead of legally motivated. In that case, it’s hard to say how the election may change things.
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How Would Alphabet Inc. and Other Companies Fare?
Another reason not to be in a hurry to dump valuable tech stocks is that the core of the businesses are valuable. Even if new regulations changed some of the advertising practices or deals smartphone manufacturers make, they still have tons of innate value. Google, Apple, Facebook and Amazon aren’t going anywhere anytime soon. People love them for a reason, be it convenience, security or design, not just the brand name. Online commerce is still the future of sales and marketing.
Why Are Some Analysts Saying To Get Ready To Invest?
Interestingly, many analysts are saying that, if anything, it might be time to prepare to invest in big tech. This is because antitrust cases in the U.S have a history of benefiting, not harming, investors.
I’m old enough (at least act shocked!) to remember what happened when AT&T was broken up into a bunch of different companies. Instead of spelling doom for the spinoffs, this actually increased the total revenue they had compared to the parent company. These days, AT&T and Verizon are doing great financially. In case you didn't know, AT&T owns both Time Warner and DirecTV.
If something similar happens with big tech, investors would probably see their dividends increase over time instead of crumble. Who knows how many valuable subsidiaries these giants have that could flourish with independence?
What’s the Takeaway?
What’s the main lesson from all of this? As my grandfather used to say, “don’t count your chickens before they hatch.” There’s a big difference between filing a lawsuit and successfully breaking up a popular company. Even if big tech is forced to make some changes, investors will probably still come out ahead.