Will antitrust case against AI burst stock market bubble?

Investment Analysis Clubs Macro Economic Trends and Risks
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The bubble in the S&P 500 has been largely driven by extremely high valuations of AI and tech stocks like Nvidia and Microsoft. “This time is different” is a dangerous assumption so the question is what will deflate this bubble.

Will a government antitrust case against AI companies burst the stock market bubble?

Regulators Take on the Giants of A.I.

The Federal Trade Commission and Justice Department are set to proceed with investigations into the dominance of Nvidia, Microsoft and OpenAI.
By Andrew Ross Sorkin, Ravi Mattu, Bernhard Warner, Sarah Kessler, Michael J. de la Merced, Lauren Hirsch and Ephrat Livni, The New York Times, June 6, 2024

An A.I. antitrust fight is coming

Nvidia has joined the $3 trillion valuation club as a blistering A.I. rally has turned it into the world’s second-most valuable company behind Microsoft.

Both companies are at the center of the artificial intelligence boom that has lifted the wider S&P 500 — and both have attracted regulatory scrutiny of the sector’s biggest players.

The F.T.C. and Justice Department are set to proceed with antitrust investigations against the duo, and OpenAI…

U.S. regulatory action trails the likes of the European Union, which passed one of the world’s first comprehensive A.I. rules last year… [end quote]

https://www.wsj.com/tech/ai/ftc-opens-antitrust-probe-of-microsoft-ai-deal-29b5169a?mod=hp_lead_pos3

FTC Opens Antitrust Probe of Microsoft AI Deal

Commission has sent subpoenas to tech giant and startup, asking whether their partnership evaded required government review

By Dave Michaels and Tom Dotan, The Wall Street Journal, Updated June 6, 2024

The Federal Trade Commission is investigating whether Microsoft structured one of its latest deals with an artificial-intelligence startup to avoid a government antitrust review of the transaction…

The FTC has already been sifting through AI investments made by leading companies such as Microsoft and Google-owner Alphabet. FTC Chair Lina Khan has expressed concern that tech behemoths could eventually acquire or control the most promising AI applications, giving them a tight grip on systems that have humanlike abilities to converse, create art and write computer code… [end quote]

Regulatory actions against these companies can have an impact on the S&P 500 as well as the individual companies. SPX is very heavily weighted in tech stocks.

In early 2024, passively managed index funds outweighed the amount of money invested in individual “actively managed” assets. This makes sense because low-load passively managed index funds have repeatedly been shown to outperform actively managed assets over time.

If the SPX is driven down because its largest components are driven down an immense amount of assets will be impacted. This could potentially cause a bear market or even a panic. Be careful out there.

Wendy

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Given the billions in spending that is necessary, there aren’t really any options other than the big players unless the government wanted to do all the spending. It could, however, limit future company acquisitions (such as when Nvidia tried to buy Arm back in 2020).

DB2

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It’s possible. Many in the US want to become like Europe. We’ve been working our way in that direction with higher wages for low-skill fast food and other workers. And with various handouts based on a combination of political expediency and popularity. And with government increasingly managing and sometimes funding business investment. Of course, the flip side is that Europe essentially neutered their tech industry, and as a result Europe hardly has any tech industry of note, and nearly no major software industry. So, it is entirely possible that our politicians choose to slow, or even kill large segments, of our own tech industry. And that will leave China as the primary tech powerhouse in the world. Keep that up for a decade or two and it becomes more likely that China eventually remains the only superpower.

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