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Highlights
- California lawmakers plan to introduce a new bill to protect children's online data.
- The bill, if passed, may impact social media companies like FB, Google's YouTube, etc.
- The tech-savvy Nasdaq Composite Index declined over 10% YTD.
The US technology sector swung between gains and losses as various issues bogged down the industry. Besides global supply woes, the heavyweights in the industry face an increasing regulatory heat that could potentially reshape their processes and even business goals.
So, is the allure of the big tech growth stocks fading? And will it cast a shadow on the entire industry? The tech-savvy Nasdaq Composite Index fell 10.69% YTD, indicating a correction after an extraordinary rally of the big tech stocks last year. But the market is now questioning whether their valuations were more than they deserve.
Several big technology companies, from Apple (AAPL), Meta Platforms (FB), to Google (GOOGL), are under intense regulatory scrutiny in the US and Europe for various reasons. But the overriding concern is their huge influence that could suck up all its competitors in the market.
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Regulatory Pressure
Besides the big FAANG companies, Chinese tech firms are also under scrutiny in the US.
But the Chinese government has also launched investigations over consumer privacy concerns.
Beijing introduced new data protection laws that limit companies from collecting user data.
In July 2021, President Joe Biden signed a new executive order to crackdown anti-competitive practices in the industry while encouraging competition.
It aimed at reining the power of tech behemoths to box out smaller competitors. It called for regulators to enact strict laws and monitor business mergers.
The order also empowers the Federal Trade Commission (FTC) to enact new rules to prohibit unfair practices employed by companies to collect personal online user data. While the order may have helped small and medium-sized companies, it came hard on tech giants.
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Meanwhile, California's lawmakers plan to introduce a new law to protect children's internet data after the UK announced similar legislation recently. It shows the growing clamor to curb the influence of the big tech global companies.
The law, if passed, will restrict the companies from collecting information or profiling young users for targeted advertisements. It also mandates age-appropriate content policies.
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The law might hit the online ad revenue of the companies. Meta Platforms and Twitter reported a weak profit in the last quarter after Apple introduced a new privacy feature that allows users to accept or decline cookie policies used by social media companies.
Twitter said the Apple policy had a "modest" impact on its profit, while Meta forecasts up to US$10 billion in revenue loss in the current fiscal unless it finds a way around it. The Meta Platforms lost around US$250 billion from its market valuation after the forecast.
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However, many prominent technology companies are entering the metaverse space to build their own virtual ecosystem and perhaps to steer clear from the current challenges in their business.
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Rate fears
The Federal Reserve's anticipated aggressive interest rate hikes in March have rattled the investors, possibly forcing them to maintain a distance from tech stocks.
Besides, the supply chain issues have adversely affected industries across the economic segments, such as automobile and retail, although there is strong demand. Also, the increasing freight costs, along with supply issues, have bumped up inflation.
