In a recent discussion on Yahoo Finance, Mark Mahaney, Evercore ISI’s managing director and head of internet research, outlined the three primary challenges facing big tech companies Alphabet (GOOG, GOOGL), Amazon (AMZN), and Meta Platforms (META) in maintaining their historical growth rates. Mahaney highlighted that without new regulatory changes, the biggest hurdle for these companies, particularly Google, could be the ongoing antitrust scrutiny. Google, having been found to be a monopolist, is in the midst of a remedies trial which could potentially extend into multiple years. However, Mahaney noted a recent increase in the likelihood of a settlement before August, suggesting this might mitigate some of the regulatory pressures.
Another significant challenge is currency fluctuations, with the U.S. dollar having strengthened by about 9% since October. This affects these multinational corporations, as roughly half of their revenue is generated overseas, leading to lower reported growth rates when translated back to dollars. Investors need to dissect these figures to understand whether the apparent slowdown in growth is due to currency effects or genuine business deceleration. Mahaney does not see evidence of core business slowdown but acknowledges that foreign exchange headwinds will somewhat obscure growth metrics.
Lastly, Mahaney discussed valuations, pointing out that the substantial stock market rally over the past two and a half years has seen these large-cap, high-quality growth stocks more than double from their mid-2022 lows. He cautions that such growth might not continue at the same pace, though he believes a favorable macroeconomic environment could support continued, albeit less aggressive, growth.
When queried further on the regulatory landscape, particularly under a Trump administration, Mahaney speculated that there might be a shift back from the aggressive antitrust stance seen under the Biden administration. He described the previous approach as generationally different, with a more assertive, neo-brand style of antitrust enforcement led by the heads of the FTC and DOJ. Mahaney anticipates a less stringent enforcement of antitrust laws which could facilitate more mergers and acquisitions, potentially benefiting both investors and the companies involved. This change in regulatory approach might not be a value judgment but an observed shift in policy direction that could influence the operational strategies of these tech giants moving forward.
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