Saad Raja

Has the tide finally turned against the tech giants?

I’ll say this right up front: I’m pretty sure Silicon Valley’s biggest players, Google, Amazon, Facebook and Apple, aren’t going anywhere soon. Their power and influence is unheard of – not just in economic and business terms, but also culturally. Their hold over a large chunk of the world’s population is as tight as ever. But despite this, there have been some big problems for many of the tech giants recently.

Rocky times

Facebook CEO Mark Zuckerberg – perhaps distracted by talk of a possible presidential run one day – has had to embark on a global damage limitation exercise in the wake of scandals around countless infringements of user privacy. Apple have been affected by the data controversy too, the latest version of their mobile operating system iOS 11 has had stability issues and they have missed important launch targets for their HomePod and AirPod products. Even Google recently abandoned their unofficial motto ‘Don’t be evil’, after removing it from their official code of conduct. That felt like a sign of less optimistic times – but does all this mean that the good days are over for the world’s biggest technology companies?

Strong stock performance

Once again – I very much doubt it. While the tide of public opinion might have turned against them a little in the wake of the multiple privacy scandals and a few unpopular product updates, it’s probably fair to say that the overall picture is still looking pretty positive for most of the Silicon Valley giants. The markets certainly seem to think so, at least.

This year got off to a rough start for many of the biggest tech stocks, with the sector seeing drops of over 10 per cent in February and April. But that slump doesn’t seem to have lasted long however, with the global stock markets now being driven by a technology sector in rude health. The Technology Select Sector index is so far up by nearly 11 per cent on the year, while the technology Exchange-Traded Fund (ETF) is up 8 per cent. Meanwhile Europe’s Stoxx technology index recently rose 2 per cent (its highest level in 17 years).

Greater regulation

There are just a few clouds on the horizon for the tech companies however. One of the most ominous looking is increased regulation – much of it led by governments keen to be seen clamping down on the darker side of the internet. Whether it is the Chinese government restricting access to certain sites, or officials from the US and EU proposing tighter regulatory frameworks, it certainly feels like the original dream of an internet that is free and open for all may have long passed. How the technology giants respond to these changes – and how far they feel they have to – remains to be seen, but it will prove an interesting challenge to an industry that is used to running with no brakes.

I don’t imagine they’re too worried though – technology companies are continuing to lead the global markets forward, and the recent news that Apple are now the most likely business to be the first to hit a market value of $1 trillion shows that the meteoric growth they’ve shown over the last decade or so is unlikely to slow soon. My attention was also drawn recently to a key indicator behind those headline highs for tech stocks on the markets – the strong performance of the relative strength index (RSI). This indicator is a good sign of momentum gathering in a particular sector, and it seems that this figure is on the rise too.

Momentum is a powerful thing – and so this is a show of strength for a section of the market that was looking strong already.

Saad Raja