The S&P 500 index (^GSPC) has been almost single-handedly boosted by a few tech stocks: Facebook (FB), Amazon (AMZN), Apple (AAPL), Microsoft (MSFT), and Alphabet (GOOG, GOOGL). Together these companies make up around a shockingly high portion, that has been up to 23% of the index’s market cap.
With such a large portion of the market swayed by these few giants, it’s no wonder that Wall Street is wondering how a President Joe Biden would mean for some of the world’s biggest stocks.
In a lengthy analysis, RBC found six tech issues at play for the sector, and found that “a Biden presidency would be neutral to slightly negative for the U.S. Technology sector,” the analyst note read.
Biden has pledged to roll back President Trump’s signature Tax Cuts and Jobs Act tax cuts for companies, saying he’ll increase the corporate income tax to 28% from 21%. RBC calls this “the dramatic difference between the two candidates,” as well as “clearly bearish.” A component of this would be what some call “the Amazon tax,” a 15% minimum tax for companies with income over $100 million.
This would also affect the S&P 500, RBC says, bringing down the index’s earnings per share by around 9%.
The Trump administration has been lenient on the tech sector as the Democrat-led House began antitrust proceedings against numerous companies in Big Tech (Apple, Facebook, Amazon, Google, Facebook.) RBC expects Biden to follow the party lead and apply pressure around privacy, cybersecurity, antitrust, competition, and Section 230, which prevents internet providers from being responsible for third-party content published via their services. (The Trump administration is also looking at Section 230, but from a bias standpoint.)
Biden has also come out in favor of more rights and fairness for gig-economy workers, which is a part of many companies’ business models in Big Tech.
“Overall, we see continued greater regulatory risk for the U.S. Tech sector, but it will be more of a balancing act in moderating misinformation/disinformation while concurrently managing international competition,” RBC wrote. However, rural broadband initiatives and net neutrality measures Biden has proposed could result in a boost for companies that depend on fast internet.
China and global trade
Biden would probably take a softer international line than Trump, cooperating on more aspects of global trade as well as climate change initiatives. But it would still take a similarly “aggressive trade enforcement stance” toward China as the Trump administration, especially when it comes to IP theft, RBC says.
In terms of globalization, a key theme during the 2016 election campaign, the analysts expect a Biden administration to implement a claw-back provision that would recoup government subsidies and tax breaks if a company outsources domestic workers with those overseas — as well as those tax-based measures that would reduce credits for overseas income.
R&D and infrastructure
The U.S. may be lagging behind China for certain infrastructure and R&D projects, and a Biden presidency would tackle some of these challenges, pumping $300 billion into electric vehicles, 5G, and AI. Part of this would be the national infrastructure for better internet connectivity to service communities for digital health and distance learning. Biden has proposed adding another $400 billion in investment in American-made tech for increased telecom and clean technology — potentially bullish for numerous tech companies.
Immigration is the main area where a Biden administration would seem more favorable, RBC notes, as tech companies frequently come against caps in how many foreign workers they can get visas for.
“In 2019, seven companies made up 49% of the 2019 H-1B visa cap: Google, Amazon, IBM, Microsoft, Facebook, Apple, and Intel,” the bank wrote. “Biden has cited a more accommodating stance on temporary and permanent employment-based immigration policies, a clear positive to Tech more broadly.”