The U.S. Justice Department’s lawsuit against Google made headlines last week. Financial markets took the news in stride. Yes, the Dow closed slightly lower, ending a three-week streak. But for the most part, investors seemed uninterested in the looming legal battle between Silicon Valley and Washington, D.C.
From my perspective, Wall Street’s calm reaction is another clear sign of tech’s economic strength and vitality. As I’ve said and written before, now is the best time to be a technology leader. Organizations cannot function without the tools and systems that digital technology provides. In today’s complex economy, technology is absolutely essential for survival and success.
The need for technology is indisputable. And yet we see continuing efforts by government to limit the power of large tech firms such as Google, Apple, Facebook and Amazon. What’s the explanation for this counterintuitive trend, and why do investors seem largely unconcerned?
“The most obvious conclusion is that Wall Street thinks this is a bunch of hooey, a series of chest-thumping show trials unlikely to result in actual enforcement. The Google case is likely to take years to play out, by which time Google and its megatech pals will likely be bigger and more powerful than today, as online advertising, retail, and content businesses grow at the expense of their offline brethren,” writes Eric Savitz in Barron’s.
Savitz also notes that the reasons for investor complacency might be more complicated, and suggests several alternative explanations:
A) If the tech titans are broken up, their spinoffs would be highly attractive to investors at all levels.
B) The investors truly believe that even if more regulations are enacted to rein in the tech giants, the overall effect on markets will be minimal.
C) No matter what happens, the tech companies will figure out how to overcome whatever obstacles are placed in their path.
I strongly urge you to read Eric’s excellent and insightful article in Barron’s. It raises provides necessary context for the current situation, and poses some fascinating questions about the future of our industry.
Here is my general prediction: Stiffer regulations will be enacted, some units of the major tech firms will probably be spun off into independent business entities, and ultimately, the long-term impact of any plausible scenario involving the tech firms will be beneficial to markets and to consumers.
The final part of my prediction is the one that really matters, and it explains why investors will likely continue their strong embrace of technology stocks.