Heroes or villains, valued partners or intrusive forces? With the role of tech giants in our society in flux, it’s prudent to keep an eye on these firms from an investment perspective.
In recent years, the legal, economic and environmental issues associated with large technology companies fuelled a strong and widespread negative reaction. Such sentiments were so intense that they even inspired a new word, techlash – it appeared in The Economist in 2013 and was shortlisted for 2018 Oxford Dictionaries Word of the Year. More recently, though, a global necessity to work and meet virtually has reignited an appreciation for tech, and big firms are committing to better values and policies. What could this mean for investors? As always, we believe it is important to analyse the full picture.
GREAT PLUG-INS FOR OUR LIVES
Imagine living without tech. Its role in our daily routines is stunning and goes way beyond search engines and social media. Digital platforms made shopping and banking faster and cheaper, without sacrificing good service. Streaming changed the way we seek entertainment and now appears an engine room for innovation as new players, both big and small, enter the market. Working and learning also rely heavily on the newest, smartest tools. Videoconferencing and online courses are reshaping our sense of community – in the time of the Coronavirus outbreak more than ever. We’re fully aware of the benefits, but what’s the real cost?
The more we embrace tech, the more personal data we share. Some of the consequences we see daily, when our thoughts and needs are ‘guessed’ by search engines and websites – useful, but intrusive and even sinister at times.
As data is the currency that many sectors thrive on, other implications go beyond our direct experience. Possessing a vast amount of data may enable misuse of information, interference in political processes and malicious spread of fake news.
A MALWARE FOR THE WORLD?
When we look at how tech giants contribute to our society, one source of criticism is the fact that, due to some regulatory loopholes, they do not pay a fair share of corporate tax in the countries they operate in. Another is their negative impact on climate change. Apart from the frequent lack of active ‘green’ policies, they store an enormous amount of information in massive servers, heavily contributing to global warming. There are also concerns that some superstar tech firms’ stranglehold on their respective markets could be impeding competition.
The US Congress, Department of Justice and Federal Trade Commissions are investigating Amazon and Google for using their powers anti-competitively. Italian authorities are questioning Amazon’s algorithms for favouring the sellers affiliated with the brand’s logistics service. And, after Google paid €2.4bn for abusing market dominance, the European Antitrust Commissioner announced tougher actions to come. However, government intervention could be limited. Trump typically defends the interests of some of these tech giants who have billions invested around the world – more than half in government bonds. How far will governments go with actions that can threaten the value of these reserves and upset their economies?
REBUFFING OR REBOOTING?
Finally, it’s worth discussing the tech sectors’ response to the techlash. Given the value of the settlements and fines paid by the tech giants relative to their balance sheets, it’s hard to consider them as powerful deterrents to unethical practices. Still, these companies seem to be waking up to the need of being better ‘citizens’.
At BNP Paribas Asset Management, we look at investment from all angles.
Tech giants are not without their flaws. Some are showing a willingness to adopt more ethical business practices, while some are still lagging in this regard. But the growing focus on tele-commuting or working from home in light of the coronavirus pandemic may prove supportive for tech businesses, whether established or new to the market. It is important for investors to assess each company individually and decide where long-term sustainable investment returns can be found.
The above-mentioned securities are for illustrative purpose only, are not intended as solicitation of the purchase of such securities, and does not constitute any investment advice or recommendation.
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