The Nasdaq was up about 5% this week following the election, versus the Mag 7 up 7%. Below I outline what I believe to be the reasons for the move and what it means for tech investors over the next 4 years. Before we jump into the takeaways, I want to emphasize an important point: what’s going on with AI is much bigger than any political policies. Both mega-cap and small-cap tech have a green field ahead to capitalize on the AI paradigm shift.

Three reasons for the market move include (weight of total move %):

1. Money on the sidelines jumping back into the market (50%): This dynamic impacts the broader market, not just tech, and is related to investors’ love of certainty. Since the election is over and uncontested, investors know the political landscape that will influence the markets. This is less about any certain Republican or Democrat policies and more about certainty. I think this had a much bigger impact than previous presidential elections because there was more uncertainty about how the nation would view the results. This market tailwind will likely diminish over the next week.
2. Reduced regulatory environment (40%): There are three pieces to the regulation topic: AI, Antitrust, and M&A. The broader market views a Republican administration as less restrictive regarding AI regulation, antitrust, and increased M&A activity. While this subject is more nuanced because large and small companies are impacted differently, the rule of thumb suggests that less regulation is a positive for innovation. As for AI, we believe the technology will benefit from Republican leadership; there will likely be fewer regulatory roadblocks to AI advancement. It’s also worth noting that the Trump administration has historically taken action against Google (Search payment) and Meta (Instagram/WhatsApp acquisition). That said, there will likely be less antitrust oversight and more M&A activity under Trump than under Biden as the mega-cap tech companies look to fortify their AI offerings.
3. Proposed Corporate Tax Cuts (10%): Trump’s reduction of corporate tax rates for US manufacturing businesses from 21% to 15% is a benefit, but only for US companies that manufacture in the US. Depending on the final structure of the tax bill, Tesla could qualify given about half of their vehicles are manufactured in the US. That said, the policy change would have no effect on the rest of Big Tech given they manufacture almost exclusively outside of the US. In other words, the market is likely overweighting the benefit of a corporate tax cut.

Tech investors seem to be overlooking two topics:

1. Tariffs: Trump has made it clear that he intends to increase tariffs meaningfully to protect US manufacturing jobs. This is a rare topic that economists from both sides of the political aisle agree on: Tariffs have a negative impact on long-term economic growth. My sense is the market believes Trump will not actually impose tariffs to the degree that he promised throughout his campaigned. If I’m wrong, the biggest loser would be Apple, and the biggest winner would be Tesla given that tariffs would be a headwind for Chinese competitors. The x-factor orbits around retaliatory tariffs, which would be difficult to anticipate or quantify.
2. Negative Big Tech Bias: Looking back at Trump’s previous administration and Vance’s campaign comments, Big Tech will face headwinds over the next 4 years. Trump and Vance do not like Big Tech because their view is these companies are biased against their values. They believe Big Tech reduces competition, moderates content, and largely supports the Democratic party. On the flip side, Trump and Vance understand the importance of strong, domestic tech to compete with China’s growing presence in AI. Netting out these two forces, I expect the new administration to largely stay out of the way of Big Tech given the greater good is to promote a strong US tech economy.

Here’s our election conclusion on the Mag 7:

• Apple: Cook’s relationship with Trump is strong and we expect the company to avoid the proposed blanket tariffs. Apple is seen as a global symbol of US strength and innovation, a brand that Trump will be reluctant to damage. Regarding Apple’s search deal with Google, my view is evolving and I now believe the outcome is a coin toss given Google’s recent loss regarding default search payment, which was initiated under Trump’s administration. Lastly, I don’t expect the DOJ to pressure Apple around App Store take rates.
• Amazon: The tariff topic is at the center of the Amazon conversation, and the risks in this area seem to be intensifying. If Trump’s goal is to improve US manufacturing, making Chinese goods more expensive, then Amazon is likely to see tariffs negatively impact the business.
• Google: I think a breakup is less likely under Trump. It would be a massive shot across the bow for US innovation. As for Google’s search deal with Apple, the outcome is a coin toss. If the deal gets voided, I believe it would be a net positive for Google and increase its operating income by 5-15% despite the company’s recent comments that voiding the agreement would have “unintended” consequences.
• Meta: In March, Trump posted “If you get rid of TikTok, Facebook and Zuckerschmuck will double their business. I don’t want Facebook, who cheated in the last Election, doing better. They are a true Enemy of the People!” Needless to say, TikTok is going to be around for a while.
• Microsoft: I don’t see a Trump presidency having a particularly positive or negative impact on the company.
• Nvidia: Crypto is a forgotten segment of the company’s business, which could get a boost under the Trump administration. Separately, the potential for tariffs on Nvidia chips coming into the US is on the table but unlikely, given the company’s technology is vital to US AI development.
• Tesla: At the highest level, a Trump administration is a meaningful positive for the company, because Elon is not only in Trump’s inner circle but has become almost a family member over the past four months. The relationships will likely make it easier for FSD to receive NHTSA approval, which would be a huge win for the company’s autonomy ambitions. Additionally, Tesla’s corporate tax rate could decline from 21% to 15%, and tariffs could keep Chinese EV competitors out of the US market.

Disclaimer