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Despite Scrutiny From Congress, Tech Companies Get Mega Rewards from Investors

The market appears unlikely to punish tech companies for allowing foreign interference in the U.S. presidential election.
Image: Mark Zuckerberg did a Facebook live to discuss Russian election interference and next steps to protect the integrity of the democratic process.
Mark Zuckerberg did a Facebook live to discuss Russian election interference and next steps to protect the integrity of the democratic process.Facebook

Well, this could get #awkward.

Executives at Facebook, Twitter, and Google parent Alphabet are likely to be rebuked by lawmakers next week when they testify before Congress about Russian surrogates buying ads on their platforms to interfere with the presidential election, but with tech stocks soaring to record highs on the strength of positive earnings announcements, there’s no indication that the market — or, for that matter, their billions of users — will punish them, regardless of the investigation’s outcome.

“Their earnings and economics trump the political noise that’s going on,” said Joe Heider, president of Cirrus Wealth Management. “It’s not a positive, but they’re reporting such strong earnings that I think investors will just move beyond it,” he told NBC News.

In an increasingly frothy market, performance gains reassure investors, said Scott Wren, senior global equity strategist at the Wells Fargo Investment Institute. “If you’re looking at valuations, their valuations versus earnings are not out of line — they’re not really stretched like the overall market,” he said.

Although advertising, the focus of next week’s Congressional inquiry, contributed significantly to the nearly $28 billion in quarterly revenue Alphabet reported Thursday, the tech rally has other ascendant drivers — and extends beyond just Alphabet, Twitter, and Facebook — which reports quarterly earnings on Wednesday.

“Amazon’s profit growth is largely due to Amazon web services, which is its cloud business,” said Forrester Research analyst Sucharita Mulpuru. Cloud services were also a bright spot in Microsoft’s earnings reported Thursday, which surpassed analyst expectations, as well.

Wren called drawing the ire of lawmakers “growing pains” for the companies. “It would be, I think, unlikely to really take the steam out of these stocks,” he said. “The tech sector as a whole is responsible for more than 40 percent of the return in the S&P 500 this year.”

The wild card, Heider said, is what would happen if the investigation leads to criminal charges, either of technology executives or top White House personnel. The former could spook investors, while the latter could shift the balance of power in Washington and lead to increased regulatory scrutiny.

“As long as the Republicans and Trump are in control of government, I think you’ll see an environment supporting less regulation rather than more,” he said.

And — so far, at least — these companies haven’t suffered in the court of public opinion.

“Unless there’s some kind of real shock that comes out of these investigations and testimony before Congress, I don’t think the consumer is necessarily going to move away from them,” Heider told NBC News.

“Imagine going a day without Google. Just like a drug, these things have become a little bit addictive.”

For better or worse, evidence suggests that ordinary Americans don’t share lawmakers’ agita when it comes to the Russian-interference issue.

“Public perception and political process are often two different things,” said Jonah Berger, marketing professor at the Wharton School at the University of Pennsylvania. “The news cycle is often very quick, and things come and go.”

Recent data from consumer perception research firm YouGov BrandIndex confirms this: Facebook and Google haven’t suffered any reputational damage, with their consumer perception ratings virtually unchanged from a year ago — and both still rank in the top 10 among Internet companies.

The immense reach these companies have into daily life is the other reason both Wall Street and the public haven’t abandoned them.

“People are conflicted by the big tech companies. There are concerns about their influence, but… the companies provide compelling benefits to users,” said Tim Calkins, clinical professor of marketing at Northwestern University’s Kellogg School of Management.

“Imagine going a day without Google. Just like a drug, these things have become a little bit addictive,” Berger said. “It’s hard to actually quit the habit.”