Tiktok In Hot Water
Tech is getting real political and that’s a problem for tech valuations.
On one side, there are foreign companies hoping to make a buck stateside and they are finding out it is not always smooth sailing.
The cradle of capitalism isn’t unfettered access to unlimited Benjamin’s.
The difficulties and examples are sprinkled through the sub-sectors of tech.
For example, to secure the EV battery plant subsidies from the US federal government, Korean companies have to produce the battery inside the United States.
Being a Korean company, Hyundai and Kia, pulling this off delivered painful financial expenses related to the companies.
Another Asian company grappling with additional political fallout is the social media app TikTok.
The most recent House bill easily passed meaning that if Senate approved the bill, TikTok might need to divest or be banned from the US.
TikTok told employees it will fight in the courts if a US bill forcing a ban or divestiture of the Chinese-owned app is signed into law.
US President Joe Biden has said he will sign the legislation promptly if it reaches his desk.
TikTok’s 170 million American users and 7 million small businesses would need to find a different platform.
ByteDance, the Chinese communist party-sponsored owner of TikTok, intends to fight the US ban in court and exhaust all legal actions before it considers any kind of divestiture, people familiar with the matter have said.
Beijing, in the meanwhile, will have to green light any TikTok deal on the tech-export ground, and it has reiterated it opposes a forced sale.
The environment for trading tech stocks has nudged into this ferocious backdrop of trading barbs and its increasingly disturbing tech companies from carrying out their duty to serve the end customer.
Tech customers don’t like that and it doesn’t matter if it’s waiting on an iPhone or software product that can’t be delivered in full, the product gets watered down or withheld.
Irreparable harm is being caused if customers don’t have full faith that tomorrow they will wake up and see an app not disappear from the app store or a device become obsolete because of regulation or government saber-rattling.
Part of this is the angst in which traders are seeing the market now as highly fraught, and tech stocks have run into a logjam at these higher levels because profit-taking is the best recipe of the day.
There needs to be a great reason for incremental investors to jump in, because let’s not kid ourselves, tech stocks are expensive at this point.
We pile into them because there are more or less 5 stocks growing robust earnings while many zombie companies don’t punch above their weight.
This is why traders are piling into Nivida, Meta, Microsoft, Amazon, and Google. I would put Super Micro Computers (SMCI) on that list too as a volatile super growth stock.
Tech still is the place to be, but the geopolitical strife is exacerbating the short-term consolidation of tech and we are experiencing larger selloffs than would be otherwise.
Tech readers must be patient as expectations for this earning season must be scaled back and we wait to unload on the next move up.
