On Trump’s Technology Attack

First Amazon (AMZN), now Alphabet.

In a strategic move to fortify his base ahead of critical midterm elections, the President of the United States Donald J. Trump has denounced tech behemoth Alphabet (GOOGL) describing search results using his name as “rigged.”

If Trump loses the midterm elections, it could open a can of worms and threaten his position.

It is no surprise that he plans to invest 40 days traveling around America campaigning for Republicans in November.

This is a big deal.

Silicon Valley has been a frequent bashing target for the White House.

The data privacy fiasco of 2018 has offered ample ammunition to pretty much anyone who wants to rain on big tech’s parade.

Big tech has experienced a wave of bad press shifting public opinion against them ruining future guidance for social media companies such as Facebook (FB).

How does the administration’s attack against Alphabet affect its stock price going forward?

It won’t even blink.

Alphabet’s stock barely budged after the President used his Twitter (TWTR) feed to sound off against the famous digital search engine company.

The stock closed down 0.83% on the day.

We have seen this story again and again with the administration lashing out at certain sectors or individuals, only for the stock market to shrug off any resemblance of weakness and power higher to new all-time highs.

Resiliency would be the best way to characterize this market.

Ironically, Trump found time yesterday to tweet that the Nasdaq had just surpassed 8,000 for the first time, showing off the tech strength underpinning the nine-year bull market.

The FANGs are front and center the stars of the show. Grumbling about a prominent member of this cohort will do nothing to stop the profit engines that tech companies have constructed.

Stellar corporate earnings are the secret sauce in this recipe and investors would be crazy to veer away from that.

Investors have no reason to panic because the tech narrative will not go away anytime soon, and the market knows that.

Political turbulence has been baked into the pie, and it would be eerie if the airwaves went silent.

Investors have largely avoided pinpointing non-economic issues and focused on the economy and its robust 4% growth rate.

It helps that the unemployment rate has fallen to 3.9%, and the full labor market is a net positive, even though inflation and wage growth has yet to contribute as much as initially hoped.

Of course, politics play a substantial role in influencing the stock market. But looking back at the past crisis, the stock market reacted the same as it will now and go much higher.

The market is still very much a tech story, and last week’s price action confirmed this.

The Mad Hedge Technology Letter is still net negative on chip stocks, but the two chip stocks that circumvent my negative calls are companies I recommended recently and that have seen a breathtaking leg up.

Not all chip companies are made equal and Advanced Micro Devices, Inc. (AMD) proved that by spiking 35% so far in August, 23% in the past week, and more than 140% this year.

The hockey stick move has seen (AMD) short sellers singed to a tune of $3 billion in 2018.

Chip stocks were supposed to get crushed by the weight of the trade war. However, these two stalwarts prove that if you are in the right names, you’ll avoid the carnage, which has beset many smaller chip companies that have the bulk of revenue tied to China.

Tech companies have bought back more than $1 trillion of their own stock since the beginning of 2009 because they have the money to do so.

Silicon Valley companies continue to purchase back their own stocks at a furious pace, putting a floor under many cash cow tech firms to the benefit of share prices.

Whether you want to believe or not, the market is metamorphizing into an all-tech story as every sector migrates to the cloud and the heavy use of big data.

Industrial giants are turning into industrial IoT companies.

Turn over any stone and you would be hard pressed to not find some sort of tech in new products.

Silicon Valley is on the cusp of rolling out its self-autonomous driving technology for commercial operations with Alphabet’s subsidiary Waymo.

If that wasn’t a good reason to buy Alphabet, then let’s review the other positive levers in their portfolio.

Alphabet is one member of a two-man team dominating digital advertising revenues with Facebook.

Global media spend is expanding at 13% YOY as the migration to mobile sees no end.

Google has the best search engine in the world. There are no competitors even close to supplanting its holy grail search engine business, unless you consider bing.com a worthy competitor, which it isn’t.

Data is the new oil, and Alphabet is able to douse itself in data because of the gobs it possesses.

This is the reason Google knows everything about most people in the world outside of China.

Alphabet will be able to leverage this enormous treasure trove of big data and monetize it using artificial intelligence technology.

Add it all up and Alphabet is massively profitable and positioned on the vanguard of every future groundbreaking technology in the world.

Picking on the big boys won’t do much, and the stock price will power on unabated for the foreseeable future.

As the midterm elections draw closer, Trump could also double down on his foreign exploits attempting to consolidate political capital.

That means virulently attacking China’s trade policy, which could go into overdrive as they could give him the source of expansive buffer for which he is looking.

However, it is a double-edge sword as many constituents in red states could be the recipient of higher costs that elevated tariffs would bring.

At the bare minimum, Trump has cast a light on China’s unfair trading policies that has tapped an uneasy nerve for many other countries quietly agreeing with the American president.

This could create a whack-a-mole scenario as China could experience growing problems with numerous undeveloped countries felt wronged, and these headaches could take on different forms such as the Forest City project in Malaysia.

Back in the equity world, the smaller chip companies are baring the brunt of the administration’s scathing rhetoric toward China, but the economy, stock market, and consumer health will hum along as if nothing happened.

The damage is limited, giving Trump sufficient leeway to speak out about side issues as the vital midterm elections roll around.

The bull market is not close to dying and there is still room to run.

 

 

 

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Quote of the Day

“Technology itself is neither good nor bad. People are good or bad,” – said former CEO of InfoSpace, Inc. and cofounder of Moon Express Naveen Jain.