Rather than political theater, proposed regulations and antitrust actions are threatening to the futures of tech giants like Facebook, Google and Amazon.
That’s according to a new note from a Goldman Sachs analyst, which reminds investors that the Department of Justice, FTC and numerous state attorneys-general have recently launched investigations into these companies.
Goldman’s chief equity strategist David Kostin also notes that tech stocks have broadly underperformed since July, which he attributes to several factors.
Along with regulatory threats, “August brought a sharp rotation out of growth stocks and into value stocks as trade news improved and recession fears eased,” Kostin wrote.
Despite its warnings, Kostin said he continues to value information technology stocks.
However, he has decided to downgrade communication services stock from buy to neutral, due to what he sees as rising regulatory risk.
“Our previous research showed that antitrust lawsuits typically take years to resolve, but ultimately result in lower valuation between lawsuit filing and resolution and slower sales growth following resolution,” Kostin wrote.
“Although the growth prospects of many communication services companies remain attractive, the valuation overhang from regulatory uncertainty will likely continue to grow and weigh on the sector’s performance,” he added.