With the novel coronavirus wreaking havoc around the world for most of 2020, investors are looking for any reason to justify buying stocks as “coronavirus plays.” One of the justifications for placing tech stocks like Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) into this group is for their development of contact tracing apps, which help stem the spread of the virus. But looking at Microsoft stock from this perspective isn’t the best approach. There are plenty of other compelling and much less controversial reasons to consider buying the stock.
While contact tracing initiatives are undeniably vital to combating Covid-19 (the disease caused by the new virus), the hype behind them isn’t without potential political risk.
With that in mind, let’s take a look at what contact tracing is, how Microsoft stock might be affected by the company’s efforts in this space and why it ultimately might not be the best catalyst to chase in the long term.
What You Need to Know About Contact Tracing Apps
By now, most of us likely have an idea of what contact tracing is. But for those who have been “media distancing” along with social distancing, contact tracing is — roughly speaking — the identification of infected individuals and the people with whom they’ve come into contact with. By determining who came in contact with infected persons, we can better prevent the spread of a disease by encouraging them to adhere to quarantine and self-isolation procedures.
The contact tracing apps developed by major tech companies like Google and Apple aid this process by using data to help track the social path an infected individual might have taken. As Susan D’Agostino of DiscoverMagazine.com explains, “[w]hen someone downloads the app, short-range Bluetooth signals known as ‘chirps’ are emitted from the smartphone and picked up by other nearby phones also running the app. If that person later tests positive, they can upload their chirps from recent weeks to a public database. Others with the app would then be notified when their phones picked up infected individuals’ chirps — alerting them that they may have been exposed.”
While this seems like a great solution in preventing the spread of the new virus, it has also introduced a wave of controversy due to potential privacy concerns. As Katina Michael, professor in the School for the Future of Innovation in Society and School of Computing, Informatics and Decision Systems Engineering at Arizona State University, explained in an interview with InvestorPlace:
“Apple and Google are acting as a bridge for the novel introduction of public interest technologies. They can guarantee a stronghold on the compliant market, and go under the radar undetected all the while pointing the finger at poor government app design. Even the self proclamation that Apple and Google will not record location information despite that their operating system-based contact tracing implementation requires permission to access the location sensor to proceed to the consent process, allowing governments at the federal or state level to make use of Global Positioning Systems (GPS).”
Michael further explains that the concern extends beyond the mere access to private data by the government and these tech companies. It could lead us on “a step toward collective awareness affording citizenry to consent to big data opportunities, location intelligence, early detection … [and] preventive mechanisms in the future.” In such a world, “citizens … are able to receive personal directions and instructions by government … [which would form] a direct way that a government can communicate with their individual constituents, and possibly even receive direct feedback about an individual’s attitudes.”
While all of these possibilities are beneficial in stopping the spread of diseases like Covid-19, there is a clear slippery slope to all of this, which many U.S. citizens — and by extension investors — will likely be turned off by. To echo the sentiment of Michael: “The socio-economic possibilities abound when such powers are considered, but they must not come at the expense of our civil liberties and freedoms. Particularly complex will be if digital immunity certificates begin to play a role in pandemic management, or more broadly, emergency management.”
Tying It All Into Microsoft Stock
It is seemingly commendable for companies like Apple, Google and Microsoft to be lending a hand in these initiatives. However, the potential ramifications tied into contact tracing apps should lead investors to stop chasing this as a potential catalyst. This is especially true considering the likelihood of additional scrutiny by citizens toward tech companies as they increasingly question their motives.
Although Microsoft engineers helped create the CovidSafe app and Japan’s Cocoa app in ways that supposedly pose less privacy risks to users, it doesn’t automatically allow the company to elude greater scrutiny from the public regarding the greater social implications outlined above.
As Michael points out, “[t]o date, it would appear that the tech giants have been defiant against government maneuvers to hoard data or garner intelligence capabilities by stealth. But does the contact tracing partnership signal a change?” She won’t be the only one asking this question. Although Michael’s assessment initially applies to Apple and Google, the concerns are universally applicable to any large tech company involved with contact tracing.
And none of this even factors in the general reluctance of U.S. states to adopt these apps to begin with.
This isn’t to say that Microsoft’s latest contact tracing initiatives will be a headwind (they’re probably a decent PR boost at the very least), but rather there are much better reasons to justify investments in Microsoft stock, which carry less political weight. For example, focusing on the stock solely as a coronavirus play, you could use the company’s groundbreaking success with its Teams app, which now has “13 million daily users,” to justify a bullish perspective.
It’s the promising growth narratives in Teams and its continued success in the cloud with Azure that have kept the stock afloat in 2020, while many others sunk. And it’s these catalysts, alongside other potential growth drivers like the upcoming release of its Xbox Series X console later this year (gaming has also proven to be a breakout success amid quarantine initiatives) that truly make Microsoft stock stand out as a promising long-term investment. Its role in the development of contact tracing apps is merely a cherry on top that could easily sour in time.
Robert Waldo has been a web editor for InvestorPlace.com since 2016. As of this writing, he did not hold a position in any of the aforementioned securities.
