U.S. technology giants are increasingly dominating the stock market in the midst of the coronavirus pandemic, even as they draw accusations of unfair business practices, and some investors fear the pump is primed for a tech-fueled sell-off.

The combined value of major tech companies stands at more than $7 trillion, accounting for almost 25% of the index’s market capitalization. That compares with less than 20% pre-pandemic.  The quintet’s burgeoning share prices reflect a transition to an increasingly technology-driven economy that has been accelerated by the coronavirus outbreak, as doorways fill with Amazon packages, homebound families stream movies and friends commiserate on Facebook. The companies are in trouble as   U.S. lawmakers are accusing them of stifling competition, a charge also leveled in recent days against Apple by Epic Games, creator of the popular game Fortnite.

Some investors worry the companies powering this year’s equity rally could become the market’s Achilles’ heel if a legal assault, a shift to undervalued names or a move higher in bond yields dries up appetite for technology stocks.

One potential threat comes from an array of investigations and legal actions against the tech companies. Recently a federal judge temporarily blocked Apple from cutting off all the developer accounts of Epic Games, pending a full hearing on the issue.

Alphabet, Facebook, Amazon and Apple face a series of federal government probes into allegations that they unfairly defend their market share, with litigation against Alphabet possible later this year.

The opposition is a worry for investors hoping the companies will continue delivering robust growth that justifies their valuations. Amazon said it operates in a “fiercely competitive” market, citing U.S. Census Bureau data that only about 10% of U.S. retail sales occur online.  The company previously said it competes vigorously against Samsung Electronics Co Ltd and other Android device makers in the smart phone markets. 

For some investors, the companies embody a dilemma that has dogged them at various times during the last decade. Many have found that cutting exposure to tech-related shares has limited portfolio performance over the long term. Still, some worry that a bad patch in the companies’ widely owned shares could trigger violent swings in broader markets.

Source- Reuters