Goldman says don't bail on the Big Tech giants because of antitrust fears

Published Wed, Jul 14 20212:09 PM EDT

Big Tech investors have little reason to worry about the Biden administration's antitrust efforts and new executive order , according to Goldman Sachs. Hoping to determine how large a threat President Joe Biden and his team are to the country's largest technology and internet companies, Goldman chief U.S. equity strategist David Kostin studied how the group fared during prior antitrust campaigns. His results were surprising: Big Tech stocks largely ignore rising antitrust concerns instead of falling as expected. "If investors were pricing regulatory risk into the valuation of Big Tech stocks, we would expect to see a negative, statistically significant coefficient for the antitrust risk factor," Kostin wrote in a note dated Tuesday. Instead, "the sensitivity of Big Tech valuations to an antitrust risk factor is not statistically significant and is actually slightly positive." To model the relationship between antitrust risk and the performance of Big Tech stocks, Kostin observed how the stocks performed during times when a greater number of people were using Google to search for terms related to antitrust action. He found that increases and decreases in the pace of antitrust queries on Google had no statistical relationship to the performance of Big Tech stocks. In other words, spikes and swoons in public interest in antitrust issues, a proxy for an administration's effort to break up companies or industries, have no impact on how well those stocks have performed in the past. As a counterexample, Kostin showed that changes in the equal-weight Nasdaq 100 valuations has a far more pronounced impact on the stock price of large tech companies. The news may come as welcome relief to a coalition of investors who have been poring over the Biden administration's plans for companies like Amazon , Alphabet, Apple and Facebook . The president last Friday signed a new executive order aimed at cracking down on alleged anti-competitive practices in Big Tech. "Capitalism without competition isn't capitalism. It's exploitation," Biden said at the White House in a speech before signing the directive. The order included 72 actions and recommendations that involve more than a dozen federal agencies, and is intended to craft the thinking around corporate monopolization and antitrust law. Those actions and recommendations included urging the Federal Trade Commission to "challenge prior bad mergers" and the Federal Communications Commissions to restore "net neutrality" rules that were undone during the Trump administration. Kostin noted that investors who are still wary of Biden's hand in Big Tech should be on the lookout for material downgrades and price target reductions from Wall Street as a leading indicator. "Curbing market share and/or restricting pricing power are behavioral remedies a regulator could impose, provided they were not overturned by a court," he wrote. "Arguably, if analysts were truly concerned about imminent antitrust intervention, they would likely be cutting 2022 sales and profit estimates. However, indexed 2022 sales revisions YTD for major Tech firms vs. the S & P 500 suggest analysts take a relatively benign view of the impact of regulatory risk." Big Tech has thus far posted strong overall performance in 2021, but has varied on a stock-by-stock basis. Facebook is up 27.2%, Amazon is up 13.7% and Google-parent Alphabet is up 46.2%. Apple has gained 12.3% since January and is up about 14% over the last month. — CNBC's Michael Bloom contributed reporting.

FAANG stocks displayed at the Nasdaq.

Adam Jeffery | CNBC

Big Tech investors have little reason to worry about the Biden administration's antitrust efforts and new executive order, according to Goldman Sachs.