The Biden administration is backing prominent Big Tech critics, but this does not appear to have deterred investors this week. The FAAMGs were all up strongly yesterday.
Current valuations are priced for the continued, unchecked march of Big Tech. However, despite yesterday’s sharp rise, the risks are skewed to the downside for the FAAMGs.
Rising real yields will present a threat to growth stocks. The risks will be exacerbated if Biden pushes fast on his $2tr infrastructure plan.
The spectre of major regulatory action will continue to hang over Big Tech for the next couple of years. For now, the stock market is treating the threat of antitrust as non-existent but the scrutiny upon the FAAMGs will only grow: they have prospered from the Covid-19 pandemic and have emerged with even more economic clout.
Furthermore, at some point, the FAAMGs will start to eat into each other’s growth. Advertising is a case in point. Amazon’s ‘other’ business unit, predominantly made up of advertising services, is growing faster (+64% y/y), than its retail, cloud, and Prime subscription divisions, generating $21.5bn in revenues in 2020. Consumers are shifting preferences, sometimes bypassing Google, using Amazon to search directly.
