This column has been updated to note recent stock price movements.
That there's little love lost between Donald Trump and Silicon Valley is hardly a new revelation. But while a Trump Administration's relationship with the tech elite is bound to be more distant and chillier than a Clinton Administration's would have been, its policies may simply be sub-optimal for the tech sector rather than disastrous -- and with some notable silver linings.
While broader equity markets are up since Trump's surprise election win, tech stocks -- and large-cap techs in particular -- have underperformed. Facebook (FB) is down 4.3% from Tuesday's close, while Apple (AAPL) is down 2.2%, Amazon (AMZN) is down 6.4%, Netflix (NFLX) has dipped 7.4%, Tesla Motors (TSLA) is down 4.4% and Alphabet (GOOGL) is down 5.2%.
When looking at this divergence, it's worth keeping in mind that many of the aforementioned names have been market standouts over the last couple of years. Amazon, for example, had risen 152% from the start of 2015 to last Tuesday. Facebook was up 59% over the same time, and Alphabet 53%.
Thus it's easy to see why the injection of some political uncertainty into the outlooks of these companies could spark some profit-taking, and perhaps a rotation of funds into sectors money managers are more certain will have a favorable political environment to work with.
On one hand, a lack of the close ties prominent tech execs formed with the Obama Administration, and appeared set to maintain with a Clinton Administration, could cause some problems. Obama, who recently guest-edited an issue of Wired magazine and gave the publication a thoughtful interview on various tech topics, has been willing to lend an ear to Silicon Valley's views on issues such as autonomous driving regulations, encryption keys, artificial intelligence research and STEM education funding.
Trump, who appears to know much less about tech and briefly called for a boycott of Apple in response to the company's unwillingness to help break the encryption on an iPhone used by one of the San Bernardino shooters, probably won't be holding talks with the likes of Tim Cook and Facebook's Mark Zuckerberg and Sheryl Sandberg as frequently. That could be an issue when, say, Google or Apple wants federal rules quickly implemented that make it easier for self-driving cars to hit the road.
And on telecom policy, the return of Republican FCC control could yield a more hands-off approach that works to the benefit of telcos and cable companies. Trump opposes the net neutrality rules set by the FCC last year, which prevent ISPs from blocking or slowing down content from specific service providers, or charging extra to others for access to a "fast lane" -- that's important for bandwidth-hungry sites such as Netflix and Google's YouTube. A Trump Administration FCC also might not be keen on efforts such as the Commission's recent attempt to open up the set-top market.
The FCC will also probably be more willing to sign off on large telecom M&A deals, which many tech companies haven't been keen about. If Sprint (S) and T-Mobile (TMUS) want to take another shot at merging, the Commission might not get in the way this time. On the other hand, Trump has signaled he's not a fan of AT&T's (T) pending acquisition of Time Warner (TWX) . Sprint and T-Mobile moved higher on Wednesday, while Time Warner fell
One doesn't have to look hard to find reasons why Amazon investors are on edge about a Trump Administration. During his campaign, Trump accused Amazon chief Jeff Bezos of using the political power obtained via his ownership of The Washington Post to prevent Amazon from being "sued for monopolistic tendencies that have led to the destruction of department stores and the retail industry," as well as to avoid tax pressure. However, Trump never spelled out which specific Amazon actions he thinks are monopolistic or violate tax law, never mind what steps he'd take to change them.
Trump's promises to pursue tougher trade policies with China and other Asian trading partners could cause problems for Amazon, Apple, HP Inc. (HPQ) and other U.S. tech companies dependent on Asian manufacturing. But once more, a lot depends on the details.
Will Trump's actions be skewed towards punishing Asian electronics and chip manufacturers, or (as seems more likely right now) trying to strengthen rust belt manufacturing industries such as steel, autos and textiles?
One thing's for sure: Trump's desire for the iPhone to be manufactured in the U.S. is a non-starter for now, given the manufacturing resources and skilled workers needed to produce over 200 million of them per year simply don't exist on a sufficient scale outside of China.
Immigration is bound to be a subject where the tech sector clashes with Trump: The President-elect has been critical of the H1-B visa program, which is actively used by the software industry, albeit while insisting he supports allowing "highly skilled" workers to come over. And he's likely to be less friendly to the alternative energy industry than the Obama Administration has been; many solar stocks sold off on Wednesday, as did Tesla.
As others have noted, Trump's plan to offer a one-time repatriation tax reduction on offshore profits to 10% from their current 35% would be a boon to many tech giants. Together with a plan to end the deferral of offshore tax payments in the absence of repatriation, that could result in hundreds of billions in offshore cash being brought to the U.S. That, in turn, could lead to a surge in M&A activity, and possibly also dividend and buyback hikes.
Would Apple be willing to target Netflix or Tesla if it could park a big chunk of the $216 billion in overseas cash it holds in U.S. accounts? Would Microsoft (MSFT) , whose offshore cash balance now tops $100 billion, consider bidding for a major cloud software firm such as Salesforce.com (CRM) or Workday (WDAY) ? A lot of possibilities exist.
And while the offshore tax plan gets more attention, Trump's plan to lower the corporate tax rate on U.S. profits to 15% from 35% would also be a positive. Alphabet and Facebook, each of which still get close to half their revenue from the U.S., would be among the larger beneficiaries. Meanwhile, Trump's plans to spend heavily on U.S. infrastructure could provide some benefit to hardware makers, and perhaps also (in spite of Trump's issues with the company) Amazon.Overall, there are plenty of reasons for Silicon Valley to be nervous about a Trump Administration. However, it shouldn't be assumed at this point that the sky is falling.