The US presidential election will have a significant impact on the regulatory landscape Big Tech companies face in the coming years.
Lawmakers initially praised tech giants like Microsoft MSFT, Amazon.com AMZN, and META for disrupting, creating jobs, and spurring economic growth, but as they grew larger, they became increasingly popular in Washington. ‘s attitude towards them has also evolved. Lawmakers’ criticism has increased as these companies have amassed significant influence over parts of the global economy.
As a result, these large technology companies face significant regulatory headwinds. At the same time, the extent of this regulatory oversight will depend on how aggressively the U.S. government chooses to pursue existing litigation and how much oversight it provides for proposed acquisitions. .
Since the election of President Joe Biden in 2020 and the subsequent nomination of Lina Khan to chair the Federal Trade Commission, there have been notable changes in the way the U.S. government interacts with big technology companies. Khan’s FTC has had a major impact on Big Tech’s merger and acquisition strategy.
Deals are under intense scrutiny, from large ones like Microsoft and Activision to smaller bolt-on acquisitions like Amazon and iRobot. This approach is likely to continue if the Democratic Party remains in power.
Former President Donald Trump is far from a supporter of Big Tech, but he is not a big fan of business regulation, as evidenced by the Justice Department’s antitrust lawsuit against Google in 2020. We believe that the general distaste for Republicans may be important in relation to: big tech. In particular, if Mr. Trump is elected to a second term, it is expected to change the way the FTC evaluates M&A of large technology companies, providing a means to once again strengthen the acquisition power of these large technology companies.
Let’s take a look at how the various outcomes of November’s election could impact M&A at big tech companies.
Get the full report: Big Tech M&A Trends in 2024: Election Impact on Tech Industry Regulation
Scenario 1: Democratic President, Democratic Senate
If Vice President Kamala Harris wins the presidential election and Democrats retain the Senate majority, we believe there will continue to be intense regulatory scrutiny of Big Tech M&A.
Over the past three years, Big Tech M&A has declined sharply.
Microsoft’s acquisition of Activision is the only notable major Big Tech acquisition under the Biden administration. Although the deal was approved by European regulators and Microsoft was able to close it, it remains under the scrutiny of the FTC, which is still pursuing charges against the acquisition.
Harris’ California roots and past views supporting M&A of large tech companies have led some analysts to believe that the Harris administration could adopt a more lenient view on Big Tech regulation. We believe that there will be a significant change in the government’s antitrust stance toward Big Tech. That’s highly unlikely, especially with control of the White House and the Senate. Harris was one of the most liberal senators, according to her voting record as a U.S. senator. She also served as vice chair as the FTC decided to pursue a more aggressive antitrust enforcement regime.
Given the Democratic Party’s landslide victory, we expect Big Tech to avoid large-scale M&A and instead focus on stock buybacks while continuing to invest heavily in artificial intelligence.
Get more insight into how the 2024 election could impact your portfolio.
Scenario 2: Democratic President, Republican Senate
We think a Democratic White House and Republican Senate is probably a better scenario for Big Tech than a Democratic sweep. But even if Washington is divided, we don’t expect antitrust enforcement on Big Tech M&A to slow down significantly.
Prominent Democratic donors such as LinkedIn co-founder Reid Hoffman (on the board of Microsoft) and IAC IAC Chairman Barry Diller have publicly opposed current antitrust laws, and if elected They are calling for Mr. Harris to be appointed as Mr. Khan’s successor at the FTC. chair.
We believe it is unlikely that Harris would replace Khan or Jonathan Canter, the Justice Department’s top antitrust official, if Democrats win a landslide victory. She has a slightly better chance of replacing them in a divided Washington. Harris may be forced to choose a more moderate approach to Big Tech regulation due to Republican backlash against Ms. Khan and pressure from prominent Democratic donors, including Mr. Khan and others. We believe this may include Mr. Cantor’s replacement.
Scenario 3: Republican President, Democratic Senate
If elected president, Trump is likely to name new heads of the FTC and the Justice Department’s antitrust divisions.
However, the administration’s decision to replace Mr. Khan and Mr. Cantor will be restrained by the Democratic Senate, and as a result, although they are critical of Big Tech, there is no possibility that they will take the same combative stance as the current FTC and Justice Department. There is a high possibility that a weak candidate will be born.
Scenario 4: Republican President, Republican Senate
From an anti-regulatory standpoint, we think a Trump presidency and Republican control of the Senate is likely the best-case scenario for Big Tech.
With Republicans controlling both the White House and the Senate, Khan and Cantor are expected to lose their positions. Republicans are expected to nominate a pro-business figure who will pursue a more lenient approach to Big Tech M&A. While we expect Big Tech M&A to remain under the scrutiny of the FTC and Department of Justice, we believe antitrust enforcement will be significantly less aggressive in the Republican all-out scenario.
A landslide Republican victory seems to be the best-case scenario for Big Tech, but other Republicans and senators are joining the fray as President Trump criticizes censorship efforts by companies like Alphabet GOOGL and Meta. I want to pay attention.
But he does not expect these critical views to fundamentally sway Republican decision-making when it comes to nominating new leaders for the FTC and the Justice Department’s antitrust division. Ultimately, we believe the pro-business core of the Republican Party is likely to succeed in lobbying for a less combative antitrust enforcement regime than the current administration.
We also believe that part of the reason some prominent venture capital firms have increased their giving to Republicans in 2024 is the expectation of a more generous approach to Big Tech M&A. .
Overall regulatory environment remains challenging
We believe increased regulatory enforcement of Big Tech M&A is consistent with broader changes in antitrust laws for these companies. Although Big Tech M&A has slowed dramatically over the past few years, the number of Big Tech monopoly cases is increasing. Currently, Alphabet, Amazon, Nvidia NVDA, Apple AAPL, and Meta all have outstanding lawsuits accusing them of engaging in monopolistic practices in their respective businesses.
Even if more moderate leaders were to take control of the FTC and the Department of Justice, we can’t expect these monopoly cases to go away. However, we believe that the nature of the FTC’s proposed remedies and the aggressiveness with which the FTC pursues antitrust enforcement will likely weaken.
Beyond isolated cases, regulators and lawmakers are likely to take a more aggressive stance toward AI. This additional oversight is likely to increase the regulatory burden on Big Tech companies, pushing them away from the usual “move fast and break things” type of product development that these companies are accustomed to. we are thinking.
Regulators in Europe and the United States are investigating various investments made by Big Tech companies in AI startups. While we expect Big Tech companies to overcome their own legal challenges in this regard, this pressure from regulators is not going to go away, especially in a field as hot as AI. I predict that.
Lawmakers are also believed to be pushing for stricter privacy and data protection policies that could impact big tech companies. Europe’s General Data Protection Regulation has forced Big Tech companies to make some changes to their data management, storage, and protection practices. We believe similar legislation could be proposed in the United States, further increasing the regulatory burden on Big Tech companies.
Top 2 Big Tech Investments
Here are the top Big Tech stocks:
microsoft alphabet
microsoft
Morningstar Rating: 4 stars Morningstar Economic Moat Rating: Broad Fair Value Estimate: $490 Price/Fair Value Estimate (as of October 2, 2024): 0.86
Microsoft has proven to be deft behind the scenes, even in restricted environments. Once the atmosphere calms down, Microsoft, with its large war chest and clear strategy, is likely to deploy capital into AI-related bolt-on deals to accelerate its R&D efforts. That said, we think Microsoft stock is attractive regardless of which party comes out on top in November.
alphabet
Morningstar Rating: 4 stars Morningstar Economic Moat Rating: Broad Fair Value Estimate: $209 Price/Fair Value Estimate (as of October 2, 2024): 0.80
Alphabet, unlike Microsoft, is under regulatory scrutiny, but the damage done to the company’s reputation as a result of the antitrust claims has been overly punitive, making it less attractive to investors. We believe that this offers an opportunity to purchase stock in
