The states are coming hard for “big tech,” the nickname for Facebook, Amazon, Apple, and Google.

On Friday, Sept. 6, the attorneys general (AGs) for multiple states and Washington, D.C., announced an antitrust investigation of Facebook. On Monday, Sept. 9, more states did the same for Google.

The effort is impressively bipartisan. A Democrat AG is leading the Facebook investigation, and a Republican AG is leading the Google investigation.

Forty-eight U.S. states in total are signed on — all except California (where Facebook and Google are headquartered) and, for some reason, Alabama. Puerto Rico is in, too.

Amazon and Apple are in the crosshairs for other reasons. Amazon is being probed by Federal Trade Commission (FTC) investigators for anticompetitive practices, and the Supreme Court greenlit an antitrust lawsuit against Apple’s app store in May.

Investors are mostly ignoring this news. As of this writing, Apple is making new all-time highs, Google is within 5% of all-time highs, and Facebook and Amazon are less than 10% off their highs.

There are reasons to stay relaxed. For example, the FTC put Google through the antitrust wringer seven years ago and came up empty-handed.

Microsoft, meanwhile, had major antitrust headaches in the late 1990s, and still became the most valuable company in the world with a trillion-plus market cap two decades later. (Microsoft is also sitting out the antitrust drama this time.)

In terms of optimistic scenarios, it’s even possible new regulation could help big tech more than it hurts, by making it harder for smaller players to compete. Big fish like red tape when it smothers smaller fish.

At the same time, it makes sense to pay attention to the AGs progress, because antitrust scenarios certainly exist that could hammer big tech.

Billion-dollar fines are seen as no big deal, but major changes to privacy requirements, a new round of anti-monopoly measures, or harsh content responsibility rules could hammer growth and profits.

Then, too, state AGs can be formidable when they get together. If you get dozens of them on the same page, watch out. The most potent example of this was the Tobacco Master Settlement Agreement of 1998, when the four largest members of “big tobacco” settled with the AGs of 46 states. As part of that agreement, big tobacco agreed to pay a whopping $206 billion in restitution over 25 years.

The AGs are talking like big tech is the new big tobacco. Jeff Landry, the Republican AG for Louisiana, says of Google: “We’re here because there’s an absolutely existential threat to our marketplace.”

Ken Paxton, the Texas AG leading the Google investigation, adds that: “We have seen evidence that Google’s business practices may have undermined consumer choice, stifled innovation, violated users’ privacy, and put Google in control of the flow and dissemination of online information.”

This could be standard bluster. But it could also be something more.

The best outcome for big tech, other than “no action taken” after a year or two of probing, would likely be a new layer of compliance regulation that costs a few hundred million per year to implement, but doesn’t change business models in any fundamental way. Wall Street might even cheer this, because it would only entrench big tech’s dominance.

The second best outcome would be a series of multibillion-dollar fines that the juggernauts could simply pay and then forget. Facebook received a $5 billion fine from the FTC, and the stock went up on the news; Google has received billions in fines from the European Union with no real dents in the share price. A one-time fine, however large, is more like a parking violation than a true threat to profits.

If the rules change around privacy or content responsibility in a big way, however, that’s a different story.

Imagine, for example, if Facebook were told: “You are responsible for any hate speech that stays on your platform longer than 24 hours,” or if Google were told the same regarding YouTube videos, with automatic penalty fines on a per-violation basis, for instances that racked up at a rate of thousands per day.

Rule changes of that nature — if they came with serious teeth in the form of automatic penalties — could force hugely expensive internal policy changes to fix the problem. The idea here would be to say: “You can spend big bucks to fix this problem internally, or you can pay fines that make your eyeballs bleed.”

A similar thing could happen to Amazon if, say, Amazon started being held responsible — truly responsible, in ways that really hurt — for toxic or counterfeit products from the third-party sellers who make up a majority of Amazon’s sales. Apple, meanwhile, is vulnerable to monopoly charges around its app store and labor practices relating to its supply chain.

From the viewpoint of those who want big tech to change, the societal problems they create are a form of external pollution they don’t have to pay for. It’s like a chemical company destroying a river for the sake of its own profits — except this river is the internet.

Will the AGs force a change in this behavior, or otherwise force big tech to divert a large portion of revenue and profits to fixing their issues? Realistically, probably not. But it remains possible they could pull out a big tobacco-style win.

The overall takeaway is that, when it comes to big tech, investors aren’t worried about antitrust just yet, and there may not be reason to worry at all. But ill winds are blowing, and scenarios do exist where long-term profit outlooks are hurt.

If truly game-changing legislation looks set to pass — or credible threats of break-up start to build — we’ll get an early warning sign in the share price behavior of big tech.

TradeSmith Research Team