Regulatory pressure on businesses in the technology sector has been increasing since last year. Rules on content moderation and payment activities appeared in the government’s supervisory agenda in several countries, while President Biden’s executive order on the safety and security of artificial intelligence has already been signed. Smaller companies are holding their breath, thinking that regulatory scrutiny may bypass them. However, major players are preparing for serious legal confrontations. By identifying tech stocks to sell, investors can avoid significant losses.
Alibaba (BABA)
Alibaba (NYSE:BABA) is one of the most famous companies in China, which has been setting an example for e-commerce companies for years. However, even its rapid growth and market dominance do not guarantee non-interference from regulators. Chinese regulators have recently conducted a series of inspections of Alibaba. They resulted in a fine of $2.8 billion. All sellers on the platform have been affected, as changes have been made to the conditions under which they can continue to operate. This shook up the market and made BABA a potential member of the tech stocks to sell list.
The official reason for the inspections is compliance with fair competition practices and consumer protection. However such strict control leads to operational risks for Alibaba and its BABA token. Given the strength of the Chinese Communist Party’s (CCP) influence on the platform, it becomes impossible for the company to evade the government’s wishes.
The CCP owns a stake in Alibaba and can elect board members. Therefore, even paying a huge fine may not be the worst-case scenario. The company’s future business decisions may be dictated not by market conditions, but by the wishes of government agencies.
Regulatory crackdowns have led to an increase in BABA’s volatility. The share price is far from the 2017-2022 levels. The unstable situation has brought BABA to a level close to $70. Negative investor sentiment and concerns about limited transparency and the company’s dependence on government sentiment could drive demand for the stock even lower. Reducing the level of control by the CCP could reverse the trend and give confidence to BABA’s holders.
Adobe (ADBE)
On the opposite side of the world is the headquarters of Adobe (NASDAQ:ADBE) — one of the world’s most prominent technology companies. The hype around AI has played into its hands, but the level of impact has been weaker than expected. Together with regulatory investigations, this is creating a critical information field around ADBE.
According to the forecast for 2024, innovative solutions will not generate the expected revenue. Slower progress in the implementation of generative AI is also reflected in the decline in investor interest. Profit of $21.4 billion at the end of this year fell short of analysts’ expectations of $21.7 billion. This is worrisome, as the company recently showed stunning results after the presentation of the Firefly model.
At the beginning of 2023, Adobe managed to surprise the market with an 85% growth. However, the end of last year saw ADBE reverse its momentum, with a 6% decline in extended trading. This can be attributed to the investment community’s unexpected forecast for 2024. But it may also be the result of the overall picture of regulatory uncertainty, prompting investors to reassess their portfolios and consider potential tech stocks to sell.
The CEO and CFO continue to voice a positive outlook, which may indicate confidence in Adobe’s technological innovations. However, this sentiment could be altered by the outcome of the Federal Trade Commission investigation. It is investigating Adobe’s subscription cancellation practices.
The company has recently experienced a $20 billion deal gone awry. Adobe Inc. abandoned its acquisition of Figma Inc. which resulted in $1 billion in fees that were burdened by the company. With increased FTC scrutiny and competition from other tech companies such as Canva, Adobe could quickly lose its market position. This will affect financial results and conditions for ADBE holders.
Alphabet (GOOGL, GOOG)
Google’s search engine fulfills about 90% of online queries. The company managed to reach this level not only due to its technological developments but also by applying business strategies. Whether it’s a smartphone manufacturer or a wireless provider, Alphabet Inc. is trying to make a deal with everyone. Thanks to this, the company has become a default search engine in many browsers and mobile devices.
In addition to litigation in the United States, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) has ongoing disputes in the European space. Since 2010, the total amount of fines levied by the European Commission has exceeded €8 billion. And this amount is not the end of the confrontation, as a new set of rules of the EU Digital Markets Act comes into force in 2024. It will be even stricter and will describe in more detail which competition and privacy practices can be applied in the EU. This could make GOOGL and GOOG stocks worth selling.
The recent court case on data privacy means that Google has to pay about $5 billion as part of the settlement agreement. The lawsuit in Brown et al v Google LLC et al was filed in 2020 and indicated a significant violation of the company’s restrictions on information collection.
Regulators continue their pressure in other areas of the company’s activities: from the digital payment processing system in the Play Store to the antitrust investigation into the interference with other search services. Its attempts to completely monopolize the market have alerted the US Department of Justice. Antitrust litigation could shake the position of Alphabet Inc. By purchasing GOOGL or GOOG shares, investors assume the risk of further disputes between the company and regulators around the world.
On the date of publication, Julia Magas did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
