Technology stocks sold off sharply at the end of last week amid reports that U.S. federal regulators were expanding their oversight of four major Silicon Valley companies. As The Wall Street Journal, Washington Post and Reuters reported, the Federal Trade Commission (FTC) and Department of Justice (DOJ) are currently investigating Apple, Amazon, Facebook, and Google-parent Alphabet on a number of different issues.
Regulators Target Big Tech Companies
Several reports last week implicated the major technology firms in an ongoing antitrust investigation headed by the FTC and DOJ. As TechCrunch recently reported, the FTC is investigating Amazon and Facebook while DOJ officials are zeroing in on Alphabet’s Google operations and Apple.
It has been eight years since Silicon Valley has faced this kind of scrutiny. After a sweeping investigation of Google, the FTC ruled back in 2013 that the company did violate antitrust laws in its search engine results. Now, lawmakers are expanding their oversight measures to beyond potential antitrust violations to include personal privacy, free speech, and what’s viewed as increasing market dominance.
These investigations are running parallel to FTC’s deliberations on the size of Facebook’s fine related to the Cambridge Analytica scandal.
Congress Unites
Since Donald Trump was elected president, Democrats and Republicans have failed to see eye-to-eye on a number of pertinent issues. On the topic of technology regulation, they appear to be on the same page.
Earlier this week, lawmakers at the House of Representatives announced they will launch a sweeping investigation of the largest technology companies to determine if they are controlling too much of the digital economy.
Representative David Cicilline, a Democrat from Rhode Island and the head of the antitrust subcommittee, said the era of lax judgment on antitrust violations is over. He has the support of representatives from both sides of the aisle.
Stocks Recover, but for How Long?
Tech stocks were hammered last week after news of the investigations broke, sending the Nasdaq Composite Index to four-month lows. Markets recovered sharply on Tuesday on totally unrelated matters.
Federal regulators are serious about holding big tech to account for its role in dominating the digital economy. As The Washington Post recently noted, the FTC and DOJ wouldn’t go through such a staff-intensive review of Apple, Amazon, Facebook, and Alphabet “if they didn’t have serious plans to investigate and potentially sue those companies.”
It remains to be seen whether renewed expectations for ultra-loose monetary policy will outweigh a widening investigation into one of Wall Street’s best-performing sectors. As it currently stands, traders are betting big that the Federal Reserve will cut interest rates as early as this summer to soften the blow of a worsening trade war. But with rate cuts priced in, ultimately there might not be much preventing a sharp reversal for technology shares in the event that regulators tighten the noose on the big tech players.
Conclusion
Following Facebook’s Cambridge Analytica fine, there’s very little chance that Alphabet, Amazon, or Apple will escape the current antitrust investigation. There’s strong reason to believe that regulators are building a solid case against all four companies and could be ready to act accordingly.
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