The tech-stock bubble is hissing air

published 23 March 2018

888_MW_P04_Markets_Main — Mark Zuckerberg: oblivious or incapable?

"If the mood in tech were to change, the overall market picture might look very different," said Fidelity's Tom Stevenson in The Daily Telegraph earlier this year. It certainly appears to be changing now. One of the hallmarks of this bull market has been the soaraway performance of the big tech names, which have accounted for much of the market upswing.

The NYSE FANG + index, which tracks the FANG stocks (Facebook, Amazon, Netflix, Google-parent Alphabet) and several others, including Apple and China's Alibaba, has almost tripled since 2014. The latest fashionable play has been Netflix, which has jumped by 50% this year alone. It's almost as if the dotcom bubble had returned, says Stevenson.

But it is now deflating. Data group Cambridge Analytica, which has links to Donald Trump's campaign strategist Steve Bannon, allegedly misused information on 50 million Facebook profiles to help Trump win the presidency. It has also been suggested that Facebook knew users' information was being exploited, but failed to alert customers. The news wiped 7% off Facebook's stock last Monday.

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A tipping point?

The latest imbroglio adds to "a growing list of outcries over the social network's practices", says Jeffrey Goldfarb on Breakingviews. Founder Mark Zuckerberg seems "either oblivious to or incapable of assuming the responsibilities that come with running an enterprise of extraordinary political, cultural and social influence".

Now the clamour for Facebook to become more accountable is spreading rapidly. The US Congress wants an investigation into the leaks, while British lawmakers have asked Zuckerberg to testify in an enquiry into possible Russian meddling in British political campaigns, including the Brexit referendum. All this comes on top of recurrent controversy over Facebook's online advertising clout, handling of privacy issues, and how much tax it pays in Europe. Facebook has repeatedly insisted that it is "a passive platform that cannot be held responsible for what happens on its site", says John Authers on FT.com, but this "can no longer wash". It now looks as though "a tipping point in opinion has been reached".

The glory days are over

And not just for Facebook. The EU is planning a levy on the big tech companies' sales instead of targeting their profits, which are harder to pin down due to tax-avoidance ploys. They could take 5% of revenues, it has been mooted. If we did that, say Tim Wallace and James Titcomb in The Daily Telegraph, Google would owe almost £300m, a sum seven times larger than its current tax bill. The US objects strongly, so the issue has now become part of the wider trade spat between America and the EU. With the political backdrop darkening, tech's glory days look over bad news for an ageing, largely tech-dependent bull market.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.