High-flying tech giants could be due for a reality check

along with the likes of Facebook, Amazon and Google would take control of the tech industry and enable them to enjoy abnormally high profits.

Thiel thought the key to success involved companies minimising how much tax they spend (a key to Amazon’s success); allowing the sharing of content without concerning yourself with copyright (as YouTube did); outpacing or buying the competition (Facebook’s two billion members removes the need for many more social networks); growing so fast that regulation has, so far, been unable to keep up.

His prediction proved prophetic. At the start of this decade the biggest companies in the world were oil companies, such as ExxonMobil and PetroChina. Currently the biggest companies by market capitalisation are Apple, Alphabet and Microsoft.

However, there are signs tech giants are becoming victims of their own success. In a competitive market, the super-normal profits they enjoy would attract the attention of rival companies. In the absence of strong competitors, these profits are instead attracting the attention of regulators and governments.

Fears the authorities are catching up with FAANGs lay partly behind the puncturing of their share price bubble last year. There could be worse to come and that as Thiel’s four laws continue to be rescinded, 2019 will be another uncomfortable year for investors in these companies.

Regulators’ actions will be shaped by public opinion. Consumers are not yet sufficiently outraged to stop buying Amazon’s products, but disquiet is growing over the way these companies avoid tax. There are also growing concerns over the part tech companies play in facilitating political interference. In increasingly febrile times, public outrage has a greater capacity to drive regulatory action.

Some company bosses are trying to get out ahead of any regulation. Apple boss Tim Cook has said regulation is inevitable. We should expect this rhetoric to continue and a line to be drawn between companies almost encouraging regulation and seeking to influence what it may look like.

Thiel himself appears to have grown weary of Silicon Valley, having moved to Los Angeles. If Thiel’s predictive powers are anything to go by, we should start looking beyond California for the next wave of technology leaders.

■ Karolina Noculak is Investment Strategist at Aberdeen Standard Investments.