Election Brings One Certainty for Tech Stocks — More Uncertainty
The tech sector is bracing for the ripple effects of the upcoming presidential election, with uncertainties looming regardless of the outcome. For investors, this creates a complex landscape as regulatory scrutiny continues to tighten around major tech firms.
The Regulatory Environment
The tech sector has long been under the microscope of regulators, and this scrutiny is not likely to diminish with the new election cycle. Lina Khan, chairwoman of the Federal Trade Commission (FTC), has made it her mission to focus on fostering competition within the tech space. This challenge requires innovative strategies, which often conflict with existing legal frameworks. The Department of Justice has also targeted significant players in the industry, with a recent U.S. District Court ruling stating that Alphabet’s Google maintains an illegal monopoly over internet search.
For investors, these antitrust challenges add layers of uncertainty that could affect stock valuations. As Dave Smith, executive vice president and head of tech investing at Bailard, notes, “The threat of antitrust really does increase the amount of uncertainty around a particular stock, or a particular company. And we think you can put a cap on valuation multiples as a result of that.”
Campaigns and Tech Policy
With Vice President Kamala Harris and former President Donald Trump as the leading candidates for the upcoming election, their stances on tech regulation are of paramount interest. Harris has conveyed a vision that seeks to balance competition and innovation, asserting in her campaign’s “New Way Forward” strategy that she would “encourage innovative technologies like AI and digital assets while protecting our consumers and investors.” However, the Harris campaign refrained from commenting on her stance toward Khan or the broader regulatory environment.
On the flip side, Trump’s political platform advocates “cutting costly and burdensome regulations.” In a recent interview with Bloomberg, Trump asserted his disapproval of Google, criticizing its influence and voicing concerns that government intervention could inadvertently “destroy the company” by breaking it apart. This reflects the ex-president’s sentiment toward big tech companies, framing them as political adversaries.
Focus on the Semiconductor Industry
Outside of antitrust discussions, the semiconductor industry has gained heightened attention in Washington D.C. Following the passage of the bipartisan Chips Act in 2022, lawmakers have emphasized the importance of increasing domestic chip manufacturing capabilities in the U.S. The Biden administration has further imposed restrictions on chip exports to China, leaning towards national security and reinforcing U.S. competitiveness in technology.
This momentum seems likely to carry forward irrespective of the presidential outcome. Chris Miller, author of the book Chip War: The Fight for the World’s Most Critical Technology, noted that both Trump and Biden’s administrations have favored policies that boost domestic chip manufacturing while curtailing technology transfers to China. “I expect the next president will do the same,” he explained.
Performance of Tech Stocks
Tech stocks have continued to thrive under both Trump and Biden, with the S&P 500 Technology sector skyrocketing by 448% since Trump took office in January 2017. This starkly contrasts the S&P 500’s overall gain of 157% during the same period. For investors, this upward trajectory indicates resilience, but remains shadowed by ongoing uncertainties linked to government policy.
As Brian Krawez, president of Scharf Investments, advises, “I wouldn’t hide in the bunker because you’re worried that Trump’s going to win or Harris is going to win. The reality is the sun is likely to come up tomorrow and stocks over the long term will be a good place to be.”
Conclusion
As we venture deeper into this election cycle, the path ahead for tech stocks continues to be paved with uncertainties. Whether it’s the regulatory challenges led by figures like Lina Khan, the divergent visions of the leading presidential candidates regarding tech policy, or the focus on domestic semiconductor production, the future remains unpredictable. Investors must remain attuned to these developments while maintaining a long-term perspective as the sun likely rises tomorrow on a still-volatile tech landscape.