USA, China’s technology giants under regulatory pressure, competition
USA, China’s technology giants under regulatory pressure, competition

USA, China’s technology giants under regulatory pressure, competition

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Investors looking to put money into US and Chinese internet giants should be cautious as these companies face a myriad of challenges, strategists told CNBC.

Investment bank Macquarie said large consumer technology companies like it Facebook and Amazon is in the “sunset” phase.

“You have to be very careful when approaching companies such as [Facebook-parent] Meta or Alphabet for as I said, in my opinion they are sunset. They suffer from a number of problems, “Viktor Shvets, Head of Global and Asian Strategy at Macquarie Capital. He also named other companies as i-Phone maker Apple and Chinese e-commerce platform Alibaba.

Headwinds could include “huge economies of scale” as well as significant political and social pressure, Shvets told CNBC’s “Street Signs Asia” on Thursday.

“So be very careful with these great digital platforms, but there are many options and profitable options in the rest of [the] tech universe, “he said.

Both US and Chinese tech giants have come under regulatory control in recent years.

Read more about China from CNBC Pro

In the past year, Chinese authorities cracked down on their technology companies and introduced legislation targeting areas from antimonopoly to data protection.

Shares of Tencent, Alibaba and Didi sold from last year when companies were caught in regulatory crosshairs. The Hang Seng Tech Index is still down more than 40% compared to a year ago when it closed on February 11th.

In the United States, President Joe Biden last year signed a new one executive order aimed at cracking down on anti-competitive practices in Big Tech, among other sectors.

Next generation technical betting

The world is set to go from second-generation technologies to third-generation, Shvets said. The question is: Which technology companies will survive the great transition?

“One thing we have learned in those transitions – that only one or two companies actually make it through. So e.g. Microsoft is truly the only major technology company moving from first generation to second – virtually no one else [has] done it, “he said.

“So the question with the big digital platforms, which of those companies do you think has the greatest opportunity or possibility or capacity to actually transit? And right now it’s not clear. Should you bet on Meta, you should bet on Google , you must bet on [Alibaba]? It is unclear. “

Shvets did not specify what the third-generation technology transition would entail, but the buzz around Web 3.0, or the next generation of the Internet, began to grow late last year.

Metaverse broadly refers to a virtual world where humans interact through three-dimensional avatars. In that room, users can participate in virtual activities such as games, concerts or live sports that can be controlled via virtual reality headsets or augmented reality equipment.

Facebook parent Meta, Apple, Microsoft and Google is ready to release new hardware and software services for the meta-verse.

Social network giant Facebook changed its name for Meta late last year, reflecting the company’s growing ambition to embrace the future of the Internet in a virtual world. However, the stock plunged in early February, noting its biggest drop in one dayafter the company predicted weaker than expected revenue growth in the next quarter.

Meta reported that the Reality Labs segment earned $ 877 million in revenue in the fourth quarter with an operating loss of $ 3.3 billion.

‘Completely competitive’ markets in China

While China’s big technology companies are under enormous regulatory pressure, they are also facing a lot of fierce competition, says Roderick Snell, an investment manager at Edinburgh-based Baillie Gifford.

He said his company has been underweight on big technology names like Alibaba and Tencent for the last few years. An underweight stock rating indicates that an analyst believes that the company’s stock will not perform so well relative to its peers in the market.

“I still think … the biggest problem for people like Alibaba, Tencent in China is always the most fiercely competitive market in the emerging markets,” he told CNBC’s Pro Talks on Wednesday.

“Tencent’s 40% market share in social media advertising has gone to other players … for the last three or four years,” Snell said. “So it’s actually my biggest concern… the amount of competition coming in. So we’ve been underweight… and [keeping] opportunities elsewhere. “

“It will probably not change that in the future,” he added.

– CNBC’s Laura Feiner contributed to this report.

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