It’s all about taxes. Specifically, paying less of them, in the wake of Donald J. Trump’s surprising ascension to the highest office in the land—and that goes for technology investors as for everyone else.
Given Trump’s rhetoric on the campaign trail, tech investors understandably might expect swift retribution against Silicon Valley by the president-elect. Among other provocations, he made a series of what sounded like back-alley threats to Amazon.com AMZN -0.45394541878822164% Amazon.com Inc. U.S.: Nasdaq USD739.01 -3.37 -0.45394541878822164% /Date(1478901600295-0600)/ Volume (Delayed 15m) : 6559377 AFTER HOURS USD741.2 2.19 0.2963424040270091% Volume (Delayed 15m) : 63407 P/E Ratio 169.33070595513598 Market Cap 366771900249.839 Dividend Yield N/A Rev. per Employee 554562 More quote details and news » (ticker: AMZN) and its CEO, Jeff Bezos. Tech names slumped last week, while sectors such as banks and biotechnology surged.
Alphabet GOOGL -1.0944648784426303% Alphabet Inc. Cl A U.S.: Nasdaq USD771.75 -8.54 -1.0944648784426303% /Date(1478901600340-0600)/ Volume (Delayed 15m) : 3570829 AFTER HOURS USD772.01 0.26 0.03368966634272757% Volume (Delayed 15m) : 21812 P/E Ratio 28.24057641147993 Market Cap 547039183776.162 Dividend Yield N/A Rev. per Employee 1378090 More quote details and news » (GOOGL) Chairman Eric Schmidt appeared at a New York Times NYT 4.25531914893617% New York Times Co. Cl A U.S.: NYSE USD12.25 0.5 4.25531914893617% /Date(1478901835751-0600)/ Volume (Delayed 15m) : 1528978 AFTER HOURS USD12.25 % Volume (Delayed 15m) : 58301 P/E Ratio 46.8989280245023 Market Cap 1852569510.90693 Dividend Yield 1.3061224489795917% Rev. per Employee 438308 More quote details and news » conference the day after the victory. When the moderator implied that Trump has tech in his crosshairs, Schmidt observed: “The top five most valued companies in America today are Apple [AAPL], Google, Amazon, Facebook FB -1.4735099337748345% Facebook Inc. Cl A U.S.: Nasdaq USD119.02 -1.78 -1.4735099337748345% /Date(1478901600153-0600)/ Volume (Delayed 15m) : 32637145 AFTER HOURS USD119.07 0.05 0.04200974626113258% Volume (Delayed 15m) : 202992 P/E Ratio 45.95366795366795 Market Cap 355599098366.341 Dividend Yield N/A Rev. per Employee 1943900 More quote details and news » [FB], and Microsoft MSFT 0.545144804088586% Microsoft Corp. U.S.: Nasdaq USD59.02 0.32 0.545144804088586% /Date(1478901600217-0600)/ Volume (Delayed 15m) : 35165626 AFTER HOURS USD59 -0.02 -0.03388681802778719% Volume (Delayed 15m) : 3602569 P/E Ratio 28.375 Market Cap 467842859898.649 Dividend Yield 2.643171806167401% Rev. per Employee 745325 More quote details and news » [MSFT]. So, if the all-R team is very focused on big business, there’s five big businesses right there.”
Among the technorati, there has largely been silence. There were pledges of comity and unity last week from Apple CEO Tim Cook and Microsoft CEO Satya Nadella, fairly typical postelection stuff. But Alphabet declined a request for Schmidt to expound on his remarks.
Most likely, no one in tech really knows what Trump intends. His language has been conflicting on topics such as the H-1B visa program, which allows high-skilled foreign workers into the U.S. Silicon Valley has consistently begged for it to be expanded, while Trump has indicated it’s abused by employers who cheat deserving Americans of good jobs.
One prominent networking CEO, Jayshree Ullal of Arista Networks ANET 0.27936212315213593% Arista Networks Inc. U.S.: NYSE USD86.15 0.24 0.27936212315213593% /Date(1478901722019-0600)/ Volume (Delayed 15m) : 725711 AFTER HOURS USD86.15 % Volume (Delayed 15m) : 2107 P/E Ratio 37.45652173913044 Market Cap 5995848675.85602 Dividend Yield N/A Rev. per Employee 872203 More quote details and news » (ANET), declined to comment when asked about the impact of potential changes to the visa program. Representatives for Facebook didn’t reply to a request for comment from CEO Mark Zuckerberg, who has defended the need for foreign workers. Microsoft’s chief counsel, Brad Smith, penned an item last week that reminded people of the importance of Microsoft’s diverse culture, with people from 157 countries working there. Microsoft declined a request for an interview with Smith.
In the breach, tax cuts and a potential tax “holiday” offer immediate, hopeful ballast to tech-industry concerns, such as whether a protectionist bent will curb global ambitions of U.S. firms, and what new restrictions on encryption could do to U.S. electronics sales.
The payoff of lower taxes for tech companies is questionable, given they already pay the lowest rates. The gang at Goldman Sachs GS 1.52835167023448% Goldman Sachs Group Inc. U.S.: NYSE USD203.94 3.07 1.52835167023448% /Date(1478901624272-0600)/ Volume (Delayed 15m) : 6265510 AFTER HOURS USD204.15 0.21 0.10297146219476316% Volume (Delayed 15m) : 24669 P/E Ratio 16.25019920318725 Market Cap 76599126272.0898 Dividend Yield 1.2748847700304011% Rev. per Employee 959701 More quote details and news » last week wrote to clients that the “single most frequent topic” of conversation after the election has been tax policy for corporations. Trump has proposed a 15% statutory corporate tax rate. The Standard & Poor’s 500 companies pay a 26% effective tax rate, but information-technology companies in the S&P 500 pay an effective 25%, the lowest of any sector, with energy the highest at 36%.
There are isolated examples of companies that could benefit, such as CDW CDW 4.4953922229714545% CDW Corp. U.S.: Nasdaq USD46.49 2 4.4953922229714545% /Date(1478901600193-0600)/ Volume (Delayed 15m) : 950780 AFTER HOURS USD45.8789 -0.6111 -1.314476231447623% Volume (Delayed 15m) : 3520 P/E Ratio 19.05327868852459 Market Cap 7139351454.84604 Dividend Yield 1.3766401376640138% Rev. per Employee 1642990 More quote details and news » (CDW), a technology integrator that packages together everything from servers to mobile phones for businesses. The company is one of the few among large tech names that pays a 30% rate among companies followed by RBC Capital’s Amit Daryanani. He expects the stock to rise if lower rates come about.
THE BIGGER PAYOFF for the techs would be a repatriation of their enormous cash piles. Goldman estimated that if something like Trump’s proposed 10% tax rate on cash brought back from overseas were passed, it could result in $500 billion of cash brought to the U.S. Following a tax holiday in 2004, companies plowed this money into buybacks, and Goldman expects that would be the case again.
Morgan Stanley MS 1.2361914781693846% Morgan Stanley U.S.: NYSE USD38.49 0.47 1.2361914781693846% /Date(1478901747563-0600)/ Volume (Delayed 15m) : 22804415 AFTER HOURS USD38.49 % Volume (Delayed 15m) : 41040 P/E Ratio 15.396 Market Cap 68395425417.8563 Dividend Yield 2.0784619381657574% Rev. per Employee 642534 More quote details and news » ’s Katy Huberty, who follows hardware makers such as Apple, expects repatriation to be the bigger boost. Last week she wrote Apple will be the biggest beneficiary, with 37% of its market value, $216 billion, in cash overseas. If it moves all that to the U.S., she estimates it would save $54 billon in taxes. That money could be used to boost shareholder payouts or for a “sizable acquisition,” and Huberty opined it would “remove an overhang to the stock that has been in place for many years.”
More buybacks and potential increases in dividends are reasons to buy tech stocks now. But you wouldn’t think that from the market action last week. There were some mild gains, such as Microsoft, and some sharp selloffs, such as Amazon, which fell almost 2%.
Much of this is probably simple portfolio rotation. Telling was the 13% rise in shares of JPMorgan Chase JPM 0.05218525766470972% JPMorgan Chase & Co. U.S.: NYSE USD76.69 0.04 0.05218525766470972% /Date(1478901630180-0600)/ Volume (Delayed 15m) : 27375038 AFTER HOURS USD76.74 0.05 0.06519754857217369% Volume (Delayed 15m) : 199285 P/E Ratio 13.222413793103449 Market Cap 262107831848.145 Dividend Yield 2.5035858651714697% Rev. per Employee 421457 More quote details and news » (JPM). Banks are benefiting from what’s considered a reflationary environment, so why not take some profits on some stocks that have been up all year—Facebook, for example, has seen a 14% rise—and put it into laggards like the banks? On Trump’s beloved infrastructure theme, shares of U.S. Concrete USCR -1.2048192771084338% U.S. Concrete Inc. U.S.: Nasdaq USD57.4 -0.7 -1.2048192771084338% /Date(1478901600212-0600)/ Volume (Delayed 15m) : 930864 AFTER HOURS USD57.4 % Volume (Delayed 15m) : 8177 P/E Ratio 56.629834254143645 Market Cap 849938429.320908 Dividend Yield N/A Rev. per Employee 412206 More quote details and news » (USCR) surged 18% last week, including 11% on Wednesday. Trade bits for buildings!
The most inspired leap of interpretation last week about the election came from bond guru Jeff Gundlach, who told CNBC on Friday that the Trump win expressed a yearning for “the real,” companies that make real stuff, unlike the fantasy that he implies tech seems to engage in. “FANG—I would stay away from them,” said Gundlach, referring to the infamous Four Horsemen of tech, Facebook, Amazon, Netflix NFLX -0.5544966210362156% Netflix Inc. U.S.: Nasdaq USD114.78 -0.64 -0.5544966210362156% /Date(1478901600418-0600)/ Volume (Delayed 15m) : 11047422 AFTER HOURS USD114.88 0.1 0.08712319219376198% Volume (Delayed 15m) : 32879 P/E Ratio 310.2162162162162 Market Cap 52437227255.2978 Dividend Yield N/A Rev. per Employee 2209850 More quote details and news » (NFLX), and Google/Alphabet. (For more of Gundlach’s views, see “Gundlach: Bond Yields Could Hit 6% in Five Years.”)
That sentiment may not last long. At least one thing that won’t change under Trump is the rush toward cloud computing, and the fact that companies that dominate cloud—namely Amazon, Microsoft, and Alphabet—will benefit.
Cloud is this decade’s great movement in technology, a replacement for the tech infrastructure that private companies used to have to buy themselves. As the research firm Ovum argued last week, there will be uncertainty about Trump’s actual policy intentions “for at least the next six months,” well after Inauguration Day. The firm believes that “there will be a general slowdown of major decisions in capital and investment by U.S. and international firms” during that period.
The immediate result could be a greater number of companies outsourcing their IT needs to the cloud. If they cannot make capital decisions for a period of time, they can nevertheless cover their daily computing needs by renting those services in the cloud.
Perhaps the lesson of all the uncertainty, then, is that every silver lining must have a cloud.
TIERNAN RAY can be reached at: tiernan.ray@barrons.com, http://ift.tt/2bFjibj or http://www.twitter.com/barronstechblog
Like Barron’s on Facebook
Follow Barron’s on Twitter
http://ift.tt/2fLJt0z
0 Response to "Will Trump Declare War on Technology Companies? - Barron's"
Post a Comment