Tech companies with a strong online presence are benefiting from the pandemic: Analyst

Dave Heger, Edward Jones Technology analyst joins the On the Move panel to discuss what to expect when Big Tech companies report earnings.

Video Transcript

ADAM SHAPIRO: We talk a lot about earnings, and you got to talk about tech. Facebook, Apple, Amazon, Google, Microsoft all on deck. Thursday is a big day in the tech world, so to get you ready, let's invite into the program Dave Heger. He is Edward Jones technology analyst. He's joining us from St. Louis, Missouri. Good to have you here.

And we've seen tech outperform so much of these markets, especially with the pandemic. Is that going to continue? Is that what you're expecting?

DAVE HEGER: Well certainly it looks like the fundamentals for tech are stronger than some of the other sectors in this pandemic period. You know, certainly the changes that we've all had in our lives related to the pandemic have been somewhat beneficial to a number of the tech companies and driven our lives more online and more into the digital world.

JULIE HYMAN: So, hey, Dave. It's Julie. So when we look at these companies, and obviously there are differences in between them, but broadly, what's going to stop them? I mean, everybody keeps sort of wringing their hands about valuations here, but from a pure fundamentals and business perspective, is there anything that you see that is going to stop or slow the momentum that we have seen for these stocks?

DAVE HEGER: Well I think, again, with the recession that we're seeing and the impact to the economy from COVID, investors are seeking out the stocks that offer growth and in revenue and earnings in this environment. And as a result, it's, you know, as I said, been the technology-related companies, the companies that have a strong online presence, that are benefiting from the pandemic.

And so as long as those fundamentals continue to look strong and we continue to see these companies posting upside to expectations, that's likely going to continue to drive investors in this direction. I know some investors keep looking for signs of that cyclical shift back to more value-oriented stocks and stocks that have been hurt by the pandemic, but, you know, as we continue to get negative news in terms of, you know, progress towards full reopening of the economy, those stocks seem to just stay by the wayside. And the stronger-growing tech names seem to continue to be in the limelight.

- Dave, ahead of the earnings, we of course have the hearings happening tomorrow on the Hill around these big tech CEOs testifying. This one is going to focus on Section 230, which gives the possibility it could be a lot more political than the last one. And we've seen this very aggressive move from Republican senators to try and discredit these platforms. You know, when you look at where the stock has been trading, I mean, how much of an impact is that likely to have when you look at the growth prospects for the company moving forward?

DAVE HEGER: Well, certainly there is regulatory risk and political risk around a number of stocks in the tech space. Obviously they're in the crosshairs from both sides of the aisle for different reasons, and there's, you know, certainly going to be, I think, increased regulations around these companies. I think the biggest question is going to be how badly does that really impact their fundamentals.

The worst case scenario that's been floated around is a full breakup, which is probably unlikely. But certainly there is going to be, I think, additional regulations that are put in place and maybe fines and other penalties that are put in place that, you know, certainly could have some negative impact on short-term fundamentals. But so far, I'm not seeing anything that would dramatically change the longer-term growth opportunity.

JULIE HYMAN: And it seems as though that's what the stocks are pricing in. In other words, not much of anything, right, Dave, or at least not much of anything for the foreseeable future. Is there any risk though that if there is a threat of something more dramatic-- I mean, for example, of course we had the recent committee report that said that we should see an antitrust breakup of Google, for example, or if we see some of the prosecutions or suits against these companies get more aggressive. Does that leave them vulnerable to some downside since it's not being priced in?

DAVE HEGER: Well, certainly I think something that on the more extreme end of the spectrum such as a breakup could have a short-term negative impact on selling stocks. Take for instance Alphabet, you know, Google's parent. In the worst case scenario, if a breakup was proposed, that-- certainly what I think would pressure the stock in the short term would still look though to-- I mean, there are not a lot of historical situations of a full breakup of the company.

But looking at, for instance, an AT&T or a Standard Oil, historically if shareholders held on to the different parts after a breakup, they still ended up doing pretty well. And there's some investors who say in the case of Alphabet, there might be value released, and that sounds like the faster-growing parts of the business such as the cloud business or YouTube-- you know, if that was split apart in some way, investors might be able to better recognize that faster growth in some of the parts of the business.