Why I’m buying Google on the government crackdown
This article appears courtesy of RiskHedge, LLC.
Imagine how much money you’d make if half of all people on the planet were your customers...
There are about 7.5 billion people on earth.
On an average day, 3.8 billion internet searches are performed.
92% of those searches—or 3.5 billion—flow through Google (GOOG).
That’s the equivalent of more than half the adult human population passing through Google’s website... every single day!
No other company commands that level of attention.
Not today, not ever.
Thirty times more people stop by Google.com every day than watched the 2019 Super Bowl.
And 1.9 billion people visit YouTube.com every month, which Google owns.
YouTube.com is the second most viewed website on earth.
Number one is Google.com.
Through its domination of online search, Google has grown rich and powerful. It’s the 4th largest company in the world… and has handed investors 1,900% gains since its IPO.
- Some important people think Google has grown TOO powerful...
As you might have heard, the US Government recently announced it will launch an investigation into “big tech.”
In short, the government is looking into whether Amazon (AMZN), Google, and Facebook (FB) are too powerful and should be broken up.
These are the 3rd … 4th … and 6th largest companies on earth. Combined, they are worth over $2 trillion. They’ve produced gains of 470%, 175%, and 95% over the past five years.
All three stocks tanked when news of the potential government crackdown hit. In recent weeks Google has dropped 20%, Amazon 15%, and Facebook 18%.
Even if you don’t own these stocks, you should care where they’re headed. Because where they go, the market is likely to follow.
Google, Amazon, and Facebook are colossal companies. Together they make up almost 10% of the S&P 500.
The S&P 500 tracks 500 of America’s biggest public companies. These three tech giants are worth as much as the smallest 193 companies in the S&P!
A smaller stock like Campbell Soup (CPB) could triple—and it wouldn’t move the needle as much as if Amazon rises just 1%.
- What I’m about to say might surprise you…
But investors are worrying for nothing.
There is little chance the government will break up big American tech firms.
In fact, the total opposite is about to happen.
Washington and big tech are set to become best friends.
I know... this is the total opposite of what you hear on CNBC, CNN, or Fox News.
Let me explain why they’re wrong.
- It all comes down to the US-China “Trade War.”
“Trade War” is an inaccurate way to describe it. What’s really happening is a “Tech War.”
Last week we discussed how the US government cut off the supply of microchips to Chinese phone maker ZTE, forcing it to shut down.
And if you’ve been reading RiskHedge, you know about the US Government’s blacklisting of Huawei.
Huawei, a giant Chinese tech company, is the world leader in 5G—the new superfast cell-network our phones and computers will soon run on.
President Trump says “The race to 5G is a race America must win.”
In 2018, Singapore-based chipmaker Broadcom (AVGO) tried to acquire American 5G leader Quallcomm (QCOM).
The US government shut the deal down, fearing it would help China gain the “know-how” to make Qualcomm’s cutting-edge 5G chips.
- The White House sees China’s technological rise as a great threat to America…
President Trump recently invited big tech CEOs to the White House to talk “bold ideas for how we can ensure American dominance” in industries of the future.
The meeting centered on how these firms and the government can work together to achieve American dominance in tech. They focused on disruptive areas like artificial Intelligence (AI)… 5G… and advanced manufacturing.
Does that sound like the government wants to break up big tech?
Not long ago, Facebook CEO Zuckerberg stood in front of Congress and warned that breaking up America’s big tech companies would help China.
He’s right. Google, for example, is the undisputed world leader in self-driving cars. It achieved this by investing billions of dollars into developing self-driving tech since 2009.
As regular RiskHedge readers know, this money came from the huge profits generated by Google’s core search and advertising businesses. It has consistently plowed a big chunk of those profits into developing breakthrough technologies. Google is also a world-leader in the crucial areas of artificial intelligence and quantum computing.
In short, Google is America’s greatest tech “incubator.” Breaking it up would ruin that.
- The US government has a history of breaking up firms it deems “too big”...
It broke up Standard Oil in 1911... AT&T in 1982... and went after Microsoft in the 1990s.
But there’s too much at stake here. MIT forecasts self-driving cars alone are set to unleash $7 trillion in new wealth in the next decade.
Imagine if a Chinese company claims the lion’s share of that?
It would help China surpass the US as the world’s largest economy—a title America has held since 1871.
No matter what you think of President Trump, we can all agree he doesn’t want China closing in on the US while he’s President. He’ll do everything he can to make sure that doesn’t happen.
Which means we should expect more cooperation between Washington and big tech.
- Okay Stephen, how does this make us money?
As I mentioned, big tech stocks have plunged on worries the US government will break them up.
Big tech will probably get a slap on the wrist. And they’ll have to pay some big fines.
But these companies won’t be broken up as long as we’re in a tech race with China.
After its recent 20% drop, Google (GOOG) is selling at its cheapest valuation since late 2016.
I’ve suggested buying Google several times in this letter. If you’ve been waiting to buy in at lower prices, now’s your chance.
You’ll likely have to wait out some choppiness in the stock price as this “break up big tech” story passes.
But I’m confident that’s all it is—a story.
The US government and big tech need each other.
Do you own any Chinese tech stocks? Tell me at stephen@riskhedge.com.
Stephen McBride
Editor – Disruption Investor
Stephen McBride is editor of the popular investment advisory Disruption Investor. Stephen and his team hunt for disruptive stocks that are changing the world and making investors wealthy in the process. Go here to discover Stephen's top "disruptor" stock pick and to try a risk-free subscription.
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This article appears courtesy of RiskHedge, LLC. RiskHedge publishes investment research and is independent of Mauldin Economics. Mauldin Economics may earn an affiliate commission from purchases you make at RiskHedge.com