Back to top

Image: Bigstock

How Does A Biden Victory Affect Big Tech?

Read MoreHide Full Article

Gone are the days when a Google executive could do a stint in government before returning to the Valley. Today, Democrats and Republicans alike are concerned about the position and power of tech companies, the red flags raised in the EU and other places on their operating practices and the antitrust issues this kind of market position inevitably brings.

A big company like Alibaba (BABA - Free Report) for example is totally subject to the decisions taken by the Chinese government. But in the U.S., there are courts and there are rights. So tech companies can take issues to court and then keep them there forever. Additionally, because of the size of their bank balances, any reasonable amount in damages levied barely makes a dent. So it’s very difficult to take punitive action that’s tough enough to hurt.

That’s what led some legislators to call for a split of big tech companies.

A House Judiciary Committee, after a 15-month investigation into the matter, issued a report last month.  “Each platform now serves as a gatekeeper over a key channel of distribution,” the report says, according to AP News. “By controlling access to markets, these giants can pick winners and losers throughout our economy.”

This isn’t much of a surprise since there has been much conversation about the abuse of power by tech companies not only with respect to things like competition, but also privacy and hate speech. Earlier, the EU came up with a comprehensive law (GDPR) on these issues, making it a bit easier for member states and individuals to enforce their rights.

The U.S. hasn’t quite gotten there yet. But the investigation does lay the groundwork if the government decides to move in that direction. And Biden himself has said that it’s a course of action that should be considered.

Social media companies in general have been at the center of debates on privacy and hate speech. But in spite of the steps they’ve taken as remedial measures, the debate has only gathered momentum. Companies like Facebook (FB - Free Report) and Twitter (TWTR - Free Report) have had a hard time treading a middle path between the two parties. Facebook in particular has even seen employee walkouts for failing to take down a Trump post that was approved by its moderating committee. There have also been numerous posts it failed to take down that the other party had issues with.

Another point of contention is Section 230 of the Communications Decency Act that protects platform providers (tech companies) from legal action when users post objectionable content. So there’s a question of fixing responsibility for actions such as when a YouTube user posts a video that one group of people has an issue with or when a Facebook user says things that hurt the feelings of another or creates opinion against a person or group. Section 230 protects the platform provider (in this case, Google or Facebook) from liability for that kind of objectionable content.

Tech companies have argued for a long time that it’s difficult and impractical to vet every piece of content before it is posted. They’ve also said that it could be hinder free speech. But of late, regulators have been talking about removing this protection considering the public opinion against it. Biden himself has spoken against this protection.

Amazon could also see restrictive regulation as its practice of using the same platform to sell private label products that compete with offerings from third-party sellers has been investigated by the Democrat-led House Antitrust Subcommittee.

However, the Senate looks set to remain with Republicans and if that’s the case, the major pain points for tech companies, such as regulation taking the tax rate from 20% to 28%, may not see the light of day. This would be a big deal for tech companies given their huge earnings.

There could also be a softer stand with respect to trade. With the Trump administration taking as tough a stand as possible on China, many tech companies that have their supply chains in Asia, find themselves in a spot. And since it’s also the place where most of the demand currently is, it has been a double whammy. Apple (AAPL - Free Report) for one is going to benefit greatly if the Biden presidency takes a more moderate stand on tariffs.

Better relations with China will also be positive for semiconductor equipment makers such as Lam Research (LRCX - Free Report) and Applied Materials (AMAT - Free Report) , as China ramps up domestic production. With China being the assembling hub for most electronic, auto and other goods, a very large number of chipmakers will benefit from a more normalized relationship with China. The position on Huawei remains unclear/unknown.

Another thing that’s likely to help a whole bunch of tech companies ranging from Alphabet (GOOGL - Free Report) and Microsoft (MSFT - Free Report) to Apple is Biden’s stand on H-1B visas. The Trump administration had severely restricted issue of these visas necessary to bring in technology workers from other countries. This is a big plus for innovation and required to keep the U.S. at the forefront.  

Wrapping Up

I wouldn’t worry about tech companies too much. If Republicans continue to hold the Senate, it will be harder to pass regulations. Also, while all these other issues are important, the three things that can affect near term operations are taxes, H-1B visas and China trade. Biden is negative for the first and positive for the other two. And they probably have this thing sewed up with all the money that they used to back the Dems.

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.

See these 7 breakthrough stocks now>>