November 30, 2020

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Here’s why you go short big tech stocks Facebook and Alphabet right now

Chamath Palihapitiya

Olivia Michael | CNBC

Former Facebook executive Chamath Palihapitiya on Friday laid out his bearish case for the social media giant as well as Google-parent Alphabet.

Palihapitiya, founder and CEO of investment firm Social Capital, said in a series of tweets that there are a handful of negative catalysts to drive these shares down over the next few years, including increased regulatory scrutiny, taxes and new product experiences.

“Big Tech’s long term success is no longer about better products,” Palihapitiya said in a Friday tweet. “They are incumbents and their success is now a multi-variate/multi-dimensional problem of competition, anti-trust, tax and regulatory multiplied by EVERY city, state, country and jurisdiction in which the operate.”

Facebook and Alphabet have been relatively been a bright spot in a market that experienced unprecedented disruptions by the coronavirus pandemic. Shares of Facebook climbed 17% this year, while Alphabet gained more than 13%. 

Investors piled into megacap technology companies this year for their insulation from the global health crisis. Thanks to the resilience of Big Tech, the Nasdaq Composite became the first major U.S. equity benchmark to hit a new record high.

Palihapitiya believes that governments around the world are getting increasingly “threatened” by the tech duo.  

“The most basic encapsulation is that $FB and $GOOG threaten to disrupt the business model of allocating and distributing political power,” Palihapitiya said.

In June last year, the House Judiciary Committee opened an anti-trust investigation into Amazon, Apple, Facebook and Google amid concerns that their unmatched market power is suppressing competition in digital markets. 

“For customers, regulation could slow down their velocity of spend,” Palihapitiya said. “A good recent example was the advertiser boycott on $FB. If regulations on hate speech, free speech get stricter for $FB and $GOOG, it becomes harder to monetize all impressions and will make ad rules stricter.”

Last month, Facebook changed its policies to prohibit hate speech in its advertisements, banning those claiming people from a specific race, ethnicity, nationality, caste, gender, sexual orientation or immigration origin are a threat to the physical safety or health of anyone else. The move frustrated more than 400 brands who pulled ads from the social media platform.

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