The Week in Breakingviews: Big Tech’s rash rivalry
BREAKINGVIEWS-The Week in Breakingviews: Big Tech’s rash rivalry The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Peter Thal Larsen
LONDON, June 7 (Reuters Breakingviews) - Welcome back! While everyone obsesses over SpaceX’s IPO, I’m looking at a different side of the tech frenzy. And a very happy birthday to the markets gurus at Reuters Open Interest, who launched their indispensable insights a year ago. (If this newsletter was forwarded to you, sign up here to get it in your inbox every weekend.)
OPENING LINE
“Wall Street is strapped to Elon Musk’s $1.75 trillion rocket. As SpaceX prepares for the largest initial public offering in history, the mega-banks ostensibly stewarding it might instead seem mere passengers.”
Read more: SpaceX straps bankers to the first autonomous IPO.
FIVE THINGS I LEARNED FROM BREAKINGVIEWS THIS WEEK
Spending on AI software and chatbots is set to more than double from 2025 to 2027. (Sticker shock is here)
Nearly $60 billion flowed out of actively managed U.S. equity funds in March and April. (Index trackers gained)
Real-time data suggests headline U.S. prices are now rising 4% a year. (Tariffs make it worse)
UK discount airline easyJet trades below the book value of its assets. (Someone’s spotted a bargain)
The number of cross-border deals has dropped by 25% in five years. (Governments are growing hostile)
ULTIMATE FIGHTING CHATBOTS
In financial markets, much of the discussion about artificial intelligence revolves around the vast sums being spent by the world’s largest companies. Investors debate whether giants like Microsoft MSFT.O and Google owner Alphabet GOOGL.O are pouring too many billions into a technology with uncertain returns. At the same time, money managers fret that AI may work too well, prompting them to dump the stocks of software providers and other firms whose future may be in doubt.
An underappreciated factor, however, is the new competitive dynamic. The largest tech firms are vying to hire the best AI engineers, develop the most sophisticated models, secure supplies of advanced chips, and build the biggest data centres. This outbreak of Big Tech rivalry could bring their stocks back to earth.
For all Silicon Valley’s rhetoric about disruption, its biggest champions occupy fortified domains. Google dominates search, while Meta Platforms META.O commands social media through Facebook and Instagram. Microsoft is the pre-eminent supplier of software. Amazon AMZN.O rules e-commerce, and so on. While they regularly bump up against each other – Amazon, Google and Microsoft are rivals in cloud computing, for example – they have mostly settled for co-existence. Competition regulators on either side of the Atlantic have been unwilling or unable to dislodge them.
This quasi-oligopoly is highly lucrative. The seven largest U.S. companies by market value – a group that includes Nvidia NVDA.O, Apple AAPL.O and Broadcom AVGO.O – have widened or at worst maintained their operating margins over the past decade. Last year, on average, they turned every dollar of revenue into 44 cents of profit before interest and tax. Their combined stock market worth exceeds $20 trillion.
Now the truce is over. Tech giants are stretching every financial sinew as they scramble for a lead in AI. Alphabet this week tapped shareholders for more than $80 billion. SpaceX, Anthropic and OpenAI are racing towards initial public offerings to fuel their vast ambitions.
This contest marks a return to cut-throat capitalistic competition. “They’re stripping for action and they’re going to all pile in the ring like some event on President Trump’s lawn,” the veteran investor Jeremy Grantham told me on The Big View this week. “They’re kind of beating their chest like gorillas and letting each other know that it’s to the death.”
The financial consequences could be severe. Intense competition tends to be incompatible with steady profits. Yet analysts expect that Big Tech operating margins will mostly remain stable or widen by 2030, according to Visible Alpha. Only Meta is forecast to be less profitable in five years’ time. “People think all seven of them are going to make obscene profits. Well, that would be new,” said Grantham, who made his name spotting and avoiding the dotcom bubble. “When does that ever happen in any market ever?” If he’s right, watch out below.
CHART OF THE WEEK
Japan depends on imported oil and gas for its energy. That reliance became starker after the country shut down its nuclear power industry following the Fukushima Daiichi disaster of 2011. Now Prime Minister Sanae Takaichi is set to make things worse by doubling down on subsidies for consumers. Hudson Lockett argues it’s a missed opportunity to address the country’s lopsided energy mix.
THE WEEK IN PODCASTS
The latest boardroom explosion at BP BP.L continues to deliver aftershocks. The abrupt departure of Chairman Albert Manifold has sparked accusations of aggressive behaviour from the oil giant and indignant denials from the Irish executive. Yawen Chen joined Aimee Donnellan and Jonathan Guilford in the Viewsroom to explain BP’s unstable executive ranks, and whether the company is vulnerable to a takeover.
On The Big View I spoke to Jeremy Grantham, the investor and co-founder of GMO, about stock market bubbles, career risk for fund managers, and the challenges of countering climate change.
PARTING SHOT
Governments in many parts of the world are eager to attract new stock market listings. Yet India seems to be taking things to extremes. Financial regulators in the country are pushing Tata Sons, the giant cars-to-outsourcing conglomerate, to improve transparency by listing its shares. Most of the holding company’s subsidiaries are already traded on the stock market, though. As Shritama Bose argues, the strange move looks like a fix for something that isn’t broken.
Want to receive The Week in Breakingviews in your inbox every Saturday? Sign up for the newsletter here.
Follow Peter Thal Larsen on Bluesky and LinkedIn.
(Editing by Aimee Donnellan; Production by Oliver Taslic)
((For previous columns by the author, Reuters customers can click on LARSEN/peter.thal.larsen@thomsonreuters.com))
