Brad Slingerlend, co-portfolio manager on the Denver-based Janus Henderson Global Technology Strategy, highlights the paradox facing US regulators over concerns about the use of data collected and generated by online social media platforms such as Facebook.
10.04.2018 | 12:30 Uhr
In the 25-year lifespan of the commercial internet, people have been fairly laissez faire about the collection and use of their online data.
But with the revelation that Facebook failed to properly control the onward dissemination of data it supplied to Cambridge Analytica that may now change. Both Congress and the UK Parliament have said they want Facebook Chief Executive Officer Mark Zuckerberg to appear before them to explain what the company plans to do to address the issue and to protect users’ information.
Europe is far ahead of the US in regulating the use of online data. From 25 May, every individual in the European Union will be covered by the General Data Protection Regulation (GDPR), which compels companies to clearly inform users about the collection of personal information and whether it will be sold or used to create profiles of likely habits, influences, preferences or leanings. The regulation will also give users the right to access and challenge the accuracy of data held on them.
Such regulation in the US could negatively impact Facebook’s business, whose revenue relies to a great extent on the data generated by its newsfeed. Other online companies such as Alphabet have more diversified income streams, with Google being able to monetise search, YouTube and cloud computing businesses while also developing units such as Waymo, the autonomous car project.
There is a growing fear among individuals, corporations and governments about how algorithms collect and use information from a variety of smart devices. This includes how data are sold and potentially used for us, against us, or by economic or political rivals.
Another fear revolves around job losses – will these artificial intelligence (AI) algorithms, which are becoming smarter all the time, monitor how I do my work and ultimately replace me?
And also there is geopolitical fear – what if another country, a potentially unfriendly one, takes a substantial lead in AI and its political ideology doesn’t square with our own? Several recent deals have brought increased scrutiny from the Committee on Foreign Investment in the United States and have been blocked at the highest levels, signalling increasing fear of foreign control of US technology assets.
And therein lies the paradox.
On the one hand, the US is worried about relatively unregulated Chinese internet companies such as Alibaba, Tencent or Baidu becoming so good at AI that they gain an insurmountable lead in areas such as digital payments. Over-regulation would therefore put American online companies at a disadvantage to their less rigorously regulated foreign counterparts.
On the other hand, there are legitimate concerns about the ways in which big internet platforms such as Facebook collect and monetise our data.
As a result, there is considerable uncertainty over how this will play out over the next few years, creating a wider range of possible outcomes for stocks such as Facebook, which is more vulnerable to regulation than the likes of Amazon, Google, Netflix or other large online companies.
And in the short term, it may also have a negative impact on mergers and acquisitions in the tech arena. Following tax reform, US mega-caps have huge stashes of cash available to repatriate – Apple has some $257 billion parked overseas; Microsoft, about $126 billion; Oracle, $56 billion; Qualcomm, $29 billion; Amazon, $26 billion; and Intel, $24 billion, according to Bloomberg. But with the fear of regulatory scrutiny hanging over the space, companies may shy away from large purchases, preferring instead to allocate cash to stock buybacks and dividend payments.
These are the views of the manager at the time of publication and may differ from the views of other Janus Henderson Investors managers. Sectors, indices and securities mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell any of them.