Goldman chief U.S. equity strategist David Kostin studied how the group fared during previous antitrust campaigns in order to determine how significant a threat President Joe Biden and his team are to the country’s largest technology and internet companies.
His findings were unexpected: instead of falling as expected, Big Tech stocks largely ignored rising antitrust concerns.
In a note dated Tuesday, Kostin wrote, “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.” “The sensitivity of Big Tech valuations to an antitrust risk factor is not statistically significant and is actually slightly positive,” according to the study.
To model the relationship between antitrust risk and Big Tech stock performance, Kostin observed how the stocks performed when a greater number of people used Google to search for terms related to antitrust action.
He discovered that changes in the frequency of antitrust queries on Google had no statistical relationship with the performance of Big Tech stocks. In other words, fluctuations in public interest in antitrust issues, which serve as a proxy for an administration’s efforts to break up companies or industries, have no bearing on how well those stocks have performed in the past.
As an example, Kostin demonstrated that changes in the equal-weight Nasdaq 100 valuations have a far greater impact on the stock price of large technology companies.
Last Friday, the president issued a new executive order intended to crack down on alleged anti-competitive practices in Big Tech.
“Capitalism isn’t capitalism unless there’s competition. It’s exploitation,” Biden said in a speech before signing the directive at the White House.
The order included 72 actions and recommendations involving more than a dozen federal agencies, and it is intended to shape corporate monopolization and antitrust law thinking.
Among the actions and recommendations were calls for the Federal Trade Commission to “challenge prior bad mergers” and for the Federal Communications Commissions to reinstate “net neutrality” rules that were repealed during the Trump administration.
Investors who are still wary of Biden’s involvement in Big Tech, according to Kostin, should keep an eye out 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 that a regulator could impose, assuming that they were not overturned by a court,” he wrote. “If analysts were truly concerned about impending antitrust intervention, they would almost certainly lower their 2022 sales and profit forecasts. However, indexed 2022 sales revisions YTD for major Tech firms vs. the S&P 500 suggest analysts take a relatively benign view of regulatory risk.”
Big Tech has so far posted strong overall performance in 2021, but this has varied by stock.
Facebook is up 27.2 percent, Amazon is up 13.7 percent, and Alphabet, the parent company of Google, is up 46.2 percent. Since January, Apple has gained 12.3 percent, and it is up about 14 percent in the last month.
Should you sell stay-at-home stocks?
Teladoc, Zoom Video Communications, and other companies that benefited from coronavirus-driven lifestyle changes. Despite the fact that vaccinations have enabled the resumption of more economic activity, and Wall Street has shifted accordingly, they remain core holdings in the actively managed Ark Innovation ETF.
While Tesla is the fund’s largest constituent, with a 10.4 percent weighting as of Wednesday, Roku is the fund’s second largest constituent. The manufacturer of video-streaming devices has a weighting of 5.99 percent.
“Roku is a significant name to us. Many of them are described as stay-at-home stocks, such as Square, Zoom, Shopify, and Teladoc, according to Wood. According to some observers, “we’re going back to work.” “Why are you paying attention to them?” she continued.
“What we believe is that the coronavirus crisis changed the world dramatically and permanently, and when consumers and businesses find faster, cheaper, better, more productive, and creative – – they will not return to the old world,” Wood said.
Teladoc, which provides a platform for telehealth services, is ARKK’s third-largest holding, accounting for 5.72 percent of the company. This is followed by ecommerce platform Shopify (4.75%) and fintech firm Square (4.64%).
Zoom, which became a household name during the pandemic due to its videoconferencing software, is the ETF’s sixth-largest holding, accounting for 4.57 percent of the total.
“Many of these stocks have been cut in half, and some have been cut in half because algorithms have said, ‘They’re stay-at-home stocks.’ ‘Selling them.’ That, we believe, is a mistake.”
Wood and her firm have gained attention on Wall Street after the flagship ARKK and its other ETFs performed exceptionally well last year, resulting in billions of dollars in inflows. The firm prefers to invest in what it refers to as disruptive innovation.
ARKK is down about 5% so far this year, but is still up nearly 50% over the last year.