Big Tech Could Be In Big Trouble Next Year Under Biden—Even As Amazon, Apple, Facebook Prepare For Another Monster Quarter

A slew of big tech companies–including FAANG firms Facebook, Amazon, Alphabet and Apple–are set to report earnings Thursday after the market closes, shining a light on a sector that's been outperforming during the pandemic and during pre-election uncertainty. But the party for tech stocks could soon fizzle if Democrats sweep next week’s election.

Wall Street firms are expecting some of tech’s biggest names to beat bullish third quarter expectations, and Goldman Sachs says Alphabet and Amazon could continue to lead strong stock market gains in 2021; their shares have surged 16% and 71% this year, compared to a 5% gain for the S&P 500, but trouble could be on the way for tech giants.

 

These third-quarter earnings reports "will underscore the positive digital transformation tailwinds in the internet sector, and we have highest confidence in the media sector (Google and Facebook) for potential upside in the second half,” Bank of America analyst Justin Post said in a weekend note to clients.

 

The increasing odds of a Biden victory and “Blue Wave” election outcome, however, could stymie progress next year, adds Post: “The Democratic Party has become increasingly critical on Internet company market power, with more liberal members, such as Elizabeth Warren [D-Mass.], of the party calling for breakups or utility-like regulation."

 

Increased scrutiny from a Democrat-controlled Congress would likely include heightened regulation over the use of personal data, according to Post, but it could go much further: In a 450-page report released earlier this month, House Democrats recommended Congress curb anticompetitive practices from Amazon, Apple, Google and Facebook by taking action, including "forcing tech companies to be broken up.”

 

“Robust results” from FAANG stocks and other big tech firms are likely to shine a "spotlight from a regulatory and antitrust perspective on just how well these tech giants are doing–and ultimately add fuel to the fire in the Beltway around breakup momentum," said Wedbush analyst Daniel Ives in a Monday note, adding that the market risk–at least for now–seems to be contained.

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