Will Big Tech Thrive or Struggle Under Trump?

Big Tech’s Dominance in the S&P 500

The S&P 500’s performance in 2024 has been overwhelmingly driven by a single sector: technology. Within it, the well-known Magnificent Seven—Apple, Microsoft, Amazon, Alphabet, Meta, Tesla, and Nvidia—continue to shape the index’s narrative. Together, they make up nearly a third of the S&P 500's total value, and their earnings growth far outpaces the remaining 493 companies.

In 2024 alone, the Magnificent Seven (represented above by the Roundhill Magnificent Seven ETF) have more than doubled the returns of the broader S&P 500, with Nvidia leading the charge, up an astounding 196% year-to-date. The earnings growth for these companies is projected at 18% year-over-year in Q3, while the rest of the index barely moves the needle. This level of concentration creates unique challenges for both passive and active investors.

While passive funds benefit from the weight these tech giants carry, active managers are increasingly frustrated. Research into the other 493 names in the index is losing relevance as Big Tech dominates returns. Moreover, their price outperformance is underpinned by equally impressive earnings growth, making their valuation premiums difficult to challenge.

But the outlook for Big Tech isn’t without risks—particularly as we head into a Trump administration poised to disrupt norms.

Will the Trump Administration Be Good or Bad for Big Tech?

Donald Trump’s return to the presidency introduces significant uncertainty for the tech sector. While his administration may bring tailwinds such as tax cuts and deregulation, it could also reignite antitrust scrutiny and geopolitical tensions.

Let’s examine both sides:

Potential Positives

1. Pro-Business Tax Policies: Trump’s tax-cutting agenda in his first term provided a windfall for corporations, and Big Tech was no exception. Lower corporate tax rates and incentives for repatriating overseas profits could once again bolster earnings and fuel stock buybacks.
2. Deregulation in Emerging Tech: Trump has expressed support for cryptocurrencies and blockchain technologies. A lighter regulatory framework could benefit companies like Meta and Alphabet, which are actively integrating AI and blockchain into their ecosystems.
3. Market Consolidation: With fewer regulatory hurdles, Trump’s policies could encourage mergers and acquisitions within the tech sector. This would allow Big Tech to expand their dominance further, potentially unlocking new growth avenues.

Potential Negatives

1. Antitrust Battles: Trump’s prior administration launched antitrust investigations into Alphabet and other tech giants. A second term could bring intensified scrutiny, with bipartisan support for reining in monopolistic practices. Calls to break up Big Tech might grow louder, creating headwinds for long-term growth.
2. Trade Tensions: Trump’s protectionist trade policies, particularly tariffs targeting China, could disrupt supply chains critical to tech hardware. Companies like Apple and Nvidia, which rely heavily on Chinese manufacturing, may face higher costs and operational inefficiencies.
3. Section 230 Reforms: Trump has been vocal about overhauling Section 230, which shields platforms from liability for user-generated content. Changes to this law could significantly impact Meta, Alphabet, and other companies whose business models depend on user engagement.

What to Watch in the Coming Months

As the Trump administration takes shape, the tech sector faces a complex and evolving landscape. Here are some key areas to monitor:

1. Antitrust Developments: Pay close attention to ongoing lawsuits and any new investigations launched by the Department of Justice or Federal Trade Commission.
2. Who's the Boss: As recently as March, VP-elect JD Vance called for Google to be broken up, calling it "one of the most dangerous companies in the world. Trump's chosen pick for attorney general Matt Gaetz has been a consistent critic of tech companies and supported current FTC chair Lina Khan calling himself a "Khanservative."
3. Trade and Tariffs: Watch for changes in U.S.-China relations and their impact on supply chains, particularly for hardware-dependent firms like Apple and Nvidia.
4. Regulatory Changes: Look out for potential legislation on Section 230 and other tech-focused regulations.
5. Earnings Guidance: As Big Tech companies navigate these challenges, their ability to maintain earnings growth will be critical to sustaining current valuations.

Considerations for Investors

The dominance of Big Tech in the S&P 500 creates both opportunities and risks.

While their earnings growth justifies much of their price performance, the sector’s outsize influence also increases market vulnerability.

• Diversify Thoughtfully: While tech remains a critical part of any portfolio, investors should ensure exposure to other sectors to mitigate concentration risk.
• Focus on Fundamentals: Despite political noise, the long-term success of Big Tech hinges on innovation, profitability, and adaptability.
• Stay Nimble: Given the Trump administration’s unpredictable nature, flexibility in portfolio strategies will be key to navigating potential volatility.

The effects of government policies on the stock market can be challenging to analyze and anticipate. Runnymede remains committed to providing you with insights and strategies to help achieve your financial goals.

What’s your take on Big Tech’s future under the Trump administration? Let us know your thoughts—we’d love to hear your perspective!

Andy Wang , Managing Partner at Runnymede Capital Management, Inc.

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