Megacap technology companies face limited risk from a renewed antitrust push out of Washington, analysts said, although the odds of stronger regulation are seen rising in the event of a “blue wave” election.
A House panel proposed far-reaching antitrust reforms designed to combat the power of companies like Amazon.com Inc., Apple Inc., Facebook Inc. and Alphabet Inc., the parent company of Google. The proposals could lead to the breakup of tech companies if approved by Congress, but Wall Street analysts say the chances of this are low, given Republicans largely shunned the report.
While there are areas of agreement between the two parties, “the nuanced differences in how to execute on those goals is still too far apart to drive bipartisan legislation,” wrote Chase White, an analyst at Height Securities. There could be some changes to antitrust laws, but the distance between the parties is “likely to result in any legislation being watered down from the Democrats’ recommendations.”
Wedbush analyst Daniel Ives wrote that the lack of consensus between the parties “remains a major issue to move things forward,” and that without core changes to antitrust law, “we believe this antitrust momentum hits a brick wall.”
The prospect of new antitrust laws is nothing new for Wall Street’s biggest stocks, which have faced “an environment of heightened regulatory scrutiny for at least the last year,” said Vital Knowledge founder Adam Crisafulli. But they’ve always shrugged off those concerns. Apple shares are up more than 50% so far this year, while Amazon is ahead almost 70%. Alphabet has been the weakest of the group, but even its 8.3% rally is more than twice the gain of the S&P 500.
All four stocks rose Wednesday, with Apple up 1.5%.
Needham reiterated its buy rating on Apple in the wake of the House report, writing that it shouldn’t “materially impact valuation.” It added that while the report included “dozens of complaints” against the iPhone maker, many were about “widely used business practices such as bundling,” and that most were business judgments -- for example, high prices and pre-loading apps -- that are “not easily fixable through regulation.”
Tech’s prospects may look different in the event of a “blue wave” election, where Democrats win both the White House and take control of the Senate, something polls indicate is increasingly likely.
In a Sept. 30 report, Bloomberg Intelligence wrote that with unified Democratic control, “there’d be greater probability of new, comprehensive U.S. laws governing online data and antitrust that could hinder expansion and empower competition.”
Wedbush’s Ives wrote that a blue wave “would change the game,” and “make a formidable force going after antitrust law changes with breakups possibly on the radar.” While this issue is a “contained risk” currently, he added, it could “morph into a threat.”
©2020 Bloomberg L.P.
