Big Tech Break-Up Won’t Happen For This One Reason – ValueWalk Premium
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Big Tech Break-Up Won’t Happen For This One Reason

The US government recently announced it will launch an investigation into “big tech.”

Q1 hedge fund letters, conference, scoops etc

Google Fuchsia OS

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It is looking into whether Amazon (AMZN), Google (GOOG), and Facebook (FB) are too powerful and should be broken up.

These are the 3rd-, 4th-, and 6th-largest companies on earth. Combined, they are worth over $2 trillion. And they’ve grown 470%, 175%, and 95% over the past five years.

All three stocks tanked on the news. In recent weeks, Google has dropped 20%, Amazon 15%, and Facebook 18%.

Even if you don’t own these stocks, you should care where they’re headed. Because where they go, the market is likely to follow.

Google, Amazon, and Facebook are colossal companies. Together they make up almost 10% of the S&P 500.

A smaller stock like Campbell Soup (CPB) could triple. And yet it wouldn’t move the needle as much as if Amazon rises just 1%.

What I’m about to say might surprise you…

Investors Are Worrying for Nothing

There is little chance the government will break up big American tech firms.

In fact, the total opposite is about to happen. Washington and big tech will become best friends.

I know, this is the total opposite of what you hear on CNBC, CNN, or Fox News.

Let me explain why they’re wrong.

It All Comes Down to the US-China “Tech War”

The US-China “Trade War” is an inaccurate way to describe it. What’s really happening is a “Tech War.”

I recently discussed how the US government cut off the supply of microchips to Chinese phone maker ZTE, forcing it to shut down.

And you probably already know about the US government’s blacklisting of Huawei.

Huawei, a giant Chinese tech company, is the world leader in 5G—the new superfast cell network our phones and computers will soon run on.

President Trump says, “The race to 5G is a race America must win.”

In 2018, Singapore-based chipmaker Broadcom (AVGO) tried to acquire American 5G leader Qualcomm (QCOM).

The US government shut down the deal, fearing it would help China gain the “know-how” to make Qualcomm’s cutting-edge 5G chips.

China’s Technological Rise Is a Great Threat to America

President Trump recently invited big tech CEOs to the White House to talk “bold ideas for how we can ensure American dominance” in industries of the future.

The meeting centered on how these firms and the government can work together to achieve American dominance in tech. They focused on disruptive areas like artificial intelligence (AI), 5G, and advanced manufacturing.

Does that sound like the government wants to break up big tech?

Not long ago, Facebook CEO Zuckerberg stood in front of Congress and warned that breaking up America’s big tech companies would help China.

He’s right. Google, for example, is the undisputed world leader in self-driving cars. It achieved this by investing billions of dollars into developing self-driving tech since 2009.

This money came from the huge profits generated by Google’s core search and advertising businesses. It has consistently plowed a big chunk of those profits into developing breakthrough technologies.

Google is also a world leader in the crucial areas of artificial intelligence and quantum computing.

In short, Google is America’s greatest tech “incubator.” Breaking it up would ruin that.

The US Government Has a History of Breaking Up Firms It Deems “Too Big”

It broke up Standard Oil in 1911, AT&T in 1982, and went after Microsoft in the 1990s.

But there’s too much at stake here. MIT forecasts self-driving cars alone are set to unleash $7 trillion in new wealth in the next decade.

Imagine if a Chinese company claims the lion’s share of that.

It would help China surpass the US as the world’s largest economy—a title America has held since 1871.

No matter what you think of President Trump, we can all agree he doesn’t want China closing in on the US while he’s President. He’ll do everything he can to make sure that doesn’t happen.

Which means we should expect more cooperation between Washington and big tech.

Now Is the Perfect Time to Buy Google

As I mentioned, big tech stocks have plunged on worries the US government will break them up.

Big tech will probably get a slap on the wrist. And they’ll have to pay some big fines. But these companies won’t be broken up as long as we’re in a tech race with China.

After its recent 20% drop, Google (GOOG) is selling at its cheapest valuation since late 2016.

If you’ve been waiting to buy in at lower prices, now’s your chance.

You’ll likely have to wait out some choppiness in the stock price as this “break up big tech” story passes.

But I’m confident that’s all it is—a story.

The US government and big tech need each other.

Article by Stephen McBride, Mauldin Economics


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