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16th July 2021, 3 mins.
We all know the feeling when the world seems set against you – and that must be how Lina Khan feels at the moment. For the second time in two weeks, “Big Tech” – with all its trillions of dollars in market cap – took aim at her.
For those not be familiar with Mrs. Khan, she is the new chair of the Federal Trade Commission (FTC). She rose to prominence by criticising the power of large technology companies and has already accused Google, Facebook, Amazon and Apple of abusing their market power. Now, she is leading the antitrust charge against large internet platforms.
In a sign of how Big Tech has been rattled by her appointment, first Amazon and now Facebook have sought her recusal from antitrust cases brought against them by the FTC.
These efforts may not succeed but in any light, US antitrust cases are just getting started. In the past 11 months, 8 lawsuits have been launched against Big Tech.
As Big Tech constitutes 23% of the S&P 500, investors should try to estimate the likelihood that the government will be successful in its emboldened antitrust posture and price this in – even if they just have a “market weight” to US stocks.
Goldman Sachs modelled the extent to which investors are pricing antitrust risk. The bad news is that the answer is very little, if any at all.
However, there is good news for investors too. American jurisprudence lends itself to lengthy, drawn out legal battles, and – as we have discussed before – the combined spending power of Big Tech is many multiples that of its regulators.
Finally, we should not forget that Facebook and Google have been targets of multiple regulatory actions but their forecast sales growth rates have not ebbed and their relative valuations to the market have remained stable.
On balance, we think that uncertainty is too high to avoid stocks in the regulatory spotlight, even if antitrust risk is not in the price.
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