Big Tech and the government … they see your every move.
Now these two juggernauts of information are going head-to-head in classic trust-busting fashion. The Wall Street Journal reported over the weekend that the Department of Justice (DOJ) has launched two investigations into Alphabet Inc. (Nasdaq: GOOG) — aka Google — for antitrust violations.
Separately, The Washington Post said that the DOJ and the Federal Trade Commission (FTC) had divided up territory between Google and Amazon.com Inc. (Nasdaq: AMZN) — in much the same way you and your uncle discuss who will get the drumstick at Thanksgiving dinner.
The implication is clear: the U.S. government is gunning for Big Tech. And it’s through playing around.
Tech juggernauts like Google, Amazon and Facebook (Nasdaq: FB) (which was surprisingly left off the government’s weekend hit list) need to be reined in and given some guidelines. But the secrecy of these government investigations should raise a few more 1984-ish hackles.
Candidates like Bernie Sanders, D-V.T., and Elizabeth Warren, D-M.A., and even President Trump have called for crackdowns on Big Tech companies.
However, the official line from the DOJ and the FTC has been to sit by and wait and allow tech behemoths to become even bigger. They are even considering approving the Sprint/T-Mobile merger.
But whatever they were waiting for, they’ve apparently found it in Amazon and Google.
If the DOJ and FTC are getting serious, we could be looking at a battle of the ages: a Brave New World v. 1984-style battle.
One thing is obvious: If the DOJ and FTC decide to act, it’s going to be bad for all FAANG stocks such as Google, Amazon, Facebook and others. While these companies offer extraordinary value for investors, portfolios betting on FAANG stocks are going to see a bumpy ride.
What may not be obvious in this Huxley v. Orwell battle is the value of investing in cybersecurity companies. Firms such as Palo Alto Networks Inc. (NYSE: PANW) and Fortinet Inc. (Nasdaq: FTNT). These companies’ products not only help keep you safe from unruly hackers, but they can also help protect your data from FAANG and government intrusion. And that’s a big plus no matter what happens between the DOJ and Big Tech companies.
The Good: Tech’s Peanut Butter and Jelly
It was only a matter of time before the big guns in mobile tech came knocking at Advanced Micro Devices Inc.’s (NYSE: AMD) door. The company has the best ultra low power chips on the market, and now Samsung Electronics Co. Ltd. is looking to get a taste.
The duo announced a multiyear partnershipthis morning to roll out mobile graphics in Samsung mobile devices based on AMD Radeon graphics chips. “We look forward to working with AMD to accelerate innovations in mobile graphics technologies that will help take future mobile computing to the next level,” said Samsung in a statement.
This is excellent news for AMD, and yet another reason for investors to jump on the bullish semiconductor bandwagon [Note: link to PRL “tech boom” promo].
The Bad: Just How Far Down Do You Want to Go?
President Trump has the pistols, so he’ll get the pesos … but Chipotle Mexican Grill Inc. (NYSE: CMG) doesn’t think that’s fair. They’d like to talk it out over a cup of joe. This morning, the burrito baron said that Trump’s proposed Mexican tariffs “could increase costs by $15 million and reduce margins by 20 to 30 basis points.”
In a statement, chief financial officer Jack Hartung indicated that prices would rise if the tariffs were made permanent. He said: “We could also consider passing on these costs through a modest price increase, such as about a nickel on a burrito, which would cover the increased cost without impacting our strong value proposition.”
But Chipotle isn’t the only one staring down the tariff barrel. Smaller chains like Chuy’s Holdings Inc. (Nasdaq: CHUY) could be hurt even more by rising costs. According to analysts at research firm Morningstar, these smaller chains would have trouble hedging against tariffs.
Investors might want to put their salsa lessons on hold for now. There’s no indication as to how long these tariffs will last.
The Ugly: FedEx Hits a Great Wall
We’ve all been there. You’re waiting on a package that’s supposed to be delivered today. So, you constantly update the FedEx Corp. (NYSE: FDX) website to see where that package is, only to see it has somehow ended up in Timbuktu … or Newark (same difference, really).
You’re mad. You want your package now! What do you do? Well, if you’re China, you launch an investigation into wrongful delivery, escalate an international trade war and send FDX stock down sharply on the news.
In this case, FedEx accidentally sent crucial Huawei documents to the U.S., instead of to Huawei headquarters. Given the U.S. blacklisting of Huawei, China feels things aren’t quite kosher in this situation, and they’re taking it out on FedEx. What’s more, China is also considering adding FedEx to a list of “unreliable entities” that could harm Chinese business interests.
While the impact to FedEx shouldn’t be all that big, the other names that could find their way on to the “unreliable” list include Qualcomm Inc. (Nasdaq: QCOM), Intel Corp. (Nasdaq: INTC) and Alphabet. Qualcomm is already dealing with a monopoly ruling in the U.S., Alphabet could battle the DOJ soon and Intel is losing market share to AMD. This is quickly growing into a list of “who not to invest in” right now.
It wasn’t that long ago that the Federal Reserve was projecting three (potentially four) interest rate hikes in 2019. In its latest minutes, the Fed essentially paused interest rate hikes for the year. However, as you can see from the chart above, the Fed funds futures market is now pricing in interest rate cuts — two of them, in fact. My, how times have changed.
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