The escalation in the battle between President Trump and social media companies such as Twitter and Facebook could dent the investment theses on each stock near-term, pros say, so it’s likely investors will rotate into less riskier big cap tech stocks.
“I think the trade [on the social media stocks] is to stand back a bit and see how this shakes out. It seems like some sort of regulation on the social media and search names has been coming for a long time. To me there are better places in the market you can go, especially in tech. You can go to a Microsoft. You can go to an Apple. You could go into some of these stay-at-home stocks so you don’t take on that risk around social media regulation,” said Sevens Report Research founder Tom Essaye on Yahoo Finance’s The First Trade.
Shares of Twitter (TWTR) fell 2% and Facebook (FB) dipped slightly on Thursday as Trump ratcheted up pressure on the social media giants. Following Twitter’s decision this week to label certain Trump tweets with blue fact checking links, the president said he will sign an executive order Thursday that targets a 1996 statute that protects the companies from lawsuits pertaining content policing.
“This will be a Big Day for Social Media and FAIRNESS!,” Trump tweeted to his 80.4 million followers Thursday morning.
Argued Twitter founder Jack Dorsey in a tweet of his own regarding the labeling decision: “This does not make us an “arbiter of truth. Our intention is to connect the dots of conflicting statements and show the information in dispute so people can judge for themselves. More transparency from us is critical so folks can clearly see the why behind our actions.”
Although the executive order is likely to be held up in the courts, the mere threat of future costly lawsuits could cause concerns among investors in Twitter and Facebook. To that end, shares of Microsoft (MSFT), Apple (AAPL) and Amazon (AMZN) all traded higher Thursday — an indication of the rotation perhaps already beginning. All three big cap tech names offer up far less regulatory risk near-term than social media companies. Moreover, the three are coming off very solid first quarters despite the global coronavirus pandemic.
“I like tech, just a different sub-sector of it,” Essaye said.
Soon, Essaye may not be alone on that trade.
This article was originally published on finance.yahoo.com/news/.
