Major technology companies have our attention in the third quarter of 2024. The ongoing antitrust battle between the U.S. government and Google could have significant macroeconomic implications, particularly for the competitive dynamics of Big Tech and broader innovation trends. As the tech sector undergoes increased regulatory scrutiny, led by landmark cases like Google’s, market structures may shift, affecting not only the dominant players but also smaller competitors, innovation pathways, and investment flows. Simultaneously, the waning enthusiasm around artificial intelligence (AI) reflects both the natural evolution of technological cycles and investor apprehension about its long-term value. These events—Google's legal struggles and the cooling AI hype—highlight a broader tension in tech markets between regulation, competition, and innovation, all of which could reverberate across the economy.
Google’s antitrust defeat may cause ripples across Big Tech
In early August, Judge Amit Mehta of the U.S. District Court for the District of Columbia ruled that Google violated antitrust laws in its internet search business. The judge determined that the search giant illegally monopolized the market by paying approximately $26 billion to smartphone manufacturers like Apple and Samsung to make its search engine the default option on phones and web browsers.1 This case is the most significant tech antitrust trial since the U.S. challenged Microsoft in the 1990s, a ruling that paved the way for increased competition on the internet.
Separately, antitrust enforcers have sued Google for allegedly monopolizing the technology used to buy, sell, and serve online display advertising. This case, set for trial in a Virginia federal court this month, may result in the government forcing Google to divest some of its advertising technology products.2
The judge’s observations in Google’s case are likely to benefit several other government antitrust cases awaiting trial against big tech names like Apple, Amazon, and Meta Platforms Inc. Additionally, Google’s defeat has led to more lawsuits, such as Yelp’s suit against Google in federal court in San Francisco, accusing Google of stifling competition in local search services.
By: Navaneeth Krishnan, Vice President - Investment Analysis
AI losing steam
The exuberance around AI seems to be waning a bit. The stock of several companies that benefited from this momentum have dropped around 15% recently. This has caused concern around the sustainability of the innovation.3
AI could be entering the “trough of disillusionment” phase of the hype cycle, like many innovations before it. This is the point where sentiment turns negative, and there are likely only two outcomes from here. The tech could make a comeback or could just be a flash in the pan. However, there has been large investment in the infrastructure that supports the technology. This investment could be the catalyst necessary for widespread adoption but could also lead to a waste of resources, further compounding issues for AI companies. AI could have a renaissance, much like solar technologies, or it could go the way of the 3D printer that struggled to gain mass traction.
By: Brandon Rick, Investment Analyst - Equity Research
It could be time to reassess Big Tech exposure
For financial advisors and their clients, increased antitrust regulation in Big Tech could signal shifts in stock performance for industry giants like Google, Apple, and Amazon, affecting portfolio allocations. Advisors may need to reassess exposure to technology stocks, balancing risks from regulatory pressures with potential gains from new market entrants. Additionally, the cooling enthusiasm around AI may prompt advisors to take a cautious approach toward investments in emerging technologies, focusing on long-term viability rather than short-term hype.
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