Stocktake: Tech giants should fear antitrust investigation

The biggest tech stocks keep getting bigger. Last month, Apple and Microsoft became the first American companies to be valued at more than $1.5 trillion. Amazon followed in their footsteps last week while Google parent Alphabet is also a trillionaire.

Shareholders are thrilled but the tech giants may be getting too big, cautions investment strategist Joachim Klement.

CEOs from four tech companies – Amazon, Apple, Facebook and Google – will testify in front of the US Congress at the end of July. That could turn into the first serious antitrust investigation in 40 years and have a similar impact on Big Tech as the 1990 tobacco lawsuits on Big Tobacco, Klement argues, but investors continue to price in "incredible growth" rates.

Apple, which made net profits of $55.3 billion in 2019, is expected to grow profits by 11 per cent annually over the next decade. If so, it would have profits of $156.9bn in 2030.

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If Facebook meets its growth expectations, it will generate $136.8bn in profits by 2030.

Overall, Amazon, Apple, Facebook and Google’s annual profits will account for about 2.5 per cent of US GDP by 2030, compared to 0.56 per cent today.

That’s a problem, says Klement. If they get into financial difficulty, it could push the US economy into recession. Not only will they be too big to fail, they will be too big to lose money, allowing companies to blackmail authorities into providing the support they desire.

Accordingly, antitrust action is inevitable, says Klement, but this curtailment of their businesses is not priced into shares. Consequently, an eventual share price crash “is thus not a question of ‘if’, but ‘when’”.