What to expect from the tech sector in 2021 and beyond

R "Ray" Wang, Constellation Research Principal Analyst & Founder, joined Yahoo Finance Live to break down his thoughts on the tech sector for the remainder of 2021 and beyond.

Video transcript

EMILY MCCORMICK: Welcome back to Yahoo Finance Live. I'm Emily McCormick. Technology stocks were some of the biggest pandemic-era , leaders and that's even with regulatory concerns heating up for the big tech giants. Here to discuss more is Ray Wang, Constellation Research Principal Analyst and Founder.

Ray, it's great to have you on with us-- definitely want to ask you about some of these big tech trends we've been seeing. But first, your new book, "Everybody Wants to Rule the World-- Surviving and Thriving in a World of Digital Giants" just came out. Why now to tell the story? And what do you want readers number one takeaway to be from this?

RAY WANG: You know, I think it's really important for folks to realize that digital giants are now in the mix. These are companies that have actually not only survived the post-pandemic craze, but they've been able to actually come back stronger. These are some of the tech giants and some of the new startups that are coming out.

And I think what's important to understand is you can build digital giants. There are ways to compete against digital giants. And we're going to have to think about a regulatory framework to actually put the digital giants in check in case they become monopolies. And that's one of the big things that's here to think about.

ADAM SHAPIRO: When you talk about monopolies, two of those giants jump out. I think a lot of people would think of Amazon, but also Facebook. And I'll start with Facebook-- this may seem old school, old world. But wouldn't the others have a better bet of surviving, like an Amazon and a Microsoft-- they actually sell something, whether it's software or cloud services. Whereas Facebook, right now, what are they selling?

RAY WANG: They're selling your data. But I think the way to look at this is a little bit different, right? These digital giants have different business models-- Amazon dominant in commerce, Google dominant in search, Facebook dominant in social networks. But they compete-- despite having different business models, they compete for the same monetization model, which is digital advertising.

And so the battle is really about which business model will actually survive. And you're right-- Facebook is basically about personal data, about social networks, about the advertising space. Amazon is a lot more complicated in digital monetization. It's got ads, search, membership subscriptions. Google is a lot more complicated in terms of their ability to have a better digital monetization mix.

And so they are very different companies, but they are aggressively competing with each other for ads, with Google at about $140 billion in ads, Facebook at about $70 billion, and Amazon sitting about $16 to $17 billion in ad revenue.

EMILY MCCORMICK: Ray, what do you think is the most likely outcome right now given some of the scrutiny that we have from state AGs for Google and Alphabet, at the federal level some of these investigations for Facebook, Amazon-- is it going to be fines? Are these companies actually going to need to be broken up? Or what do you see as being a potential punitive measures?

RAY WANG: Well, I think it's a little bit early for that. I mean, when you look at monopolies and you look at antitrust, they have to be, like, you know, making it harder for customers to get access to new services. They have to be stifling innovation. They've got to be driving up costs. They've got to be limiting choices.

And we don't see that yet. But it doesn't mean we shouldn't think about regulations when that occurs. We just have posturing right now, because it's popular to go after big tech companies if you're running for higher office, if you're worried about scale and size of companies. But we also have to remember there's been a lot of benefits, right-- access to the internet, the ability to learn, AI that's coming up.

Your mapping, even translation capabilities are all there. And so when we see those benefits drop, we have to have do a cost-benefit analysis to understand when it's actually time to actually invoke antitrust. But the likely outcome isn't a breakup. The likely outcome is that these digital giants will be held back from getting into new industries. They'll have to joint venture their way into new industries, but they won't be allowed to enter any more industries as other companies actually create that lobby block to keep them in their swim lanes.

ADAM SHAPIRO: When you speak to the people who actually are the big tech giants, do they have any fear going forward about what Washington might do along the lines of how you just described it?

RAY WANG: You know, they're definitely concerned. They have ideas of getting into health care. They have ideas of getting into financial services at the edges. They have ideas of getting into space, and automotive, and other industries. And I think what we're going to see is more joint venture startups with existing companies to get into those spaces.

They certainly have the capital, right? They're sitting on billions of cash that they can deploy. And their investors are looking for them to get into other spaces as well. But the challenge is going to be the regulatory environment. We'll have to see what happens in the mid-year elections.

But both Republicans and Democrats on the Hill, they're concerned, right? They all have different reasons, but enough to actually say, we do have to curb big tech. We do have to curb these digital giants.

EMILY MCCORMICK: In the shorter term, of course, we just had second quarter earnings kick off. What do you expect to see from some of these big tech names? Did we already see that peak growth rate happened during the pandemic? Or is there still room for them to grow here in Q2 and beyond?

RAY WANG: There is room for acceleration. And what we are seeing is that the companies that have emerged post-pandemic are emerging even stronger. And what they've been able to do is eliminate competition along the way. They've been able to survive. They've been able to grow revenues. We're going to still see that.

For example, look at Apple-- MacBook sales may be decelerating, but they're still in a reinvestment cycle in terms of refresh for the iPhone. And more importantly, they're growing their services revenue. Take Amazon-- they've managed to say they're going to announce 100,000 more hires, especially in military and military families.

And so they're definitely growing. If you look, they've pretty much cornered the trucking last mile space. They bought x number of airplanes over the last six months. So they're definitely charging and expanding their market presence. Take a company like Google, right-- cloud business is growing.

It's going to be their biggest revenue driver in terms of growth. And so you see cloud services, you see interesting partnerships in the industry side. And then Microsoft, they just got into the cybersecurity business with a $500 million acquisition, and they want to go after that space. And they're also growing, you know, their developer space, and they're also growing their ability to expand in the cloud. So I think they're still doing very, very well. And they're fundamental technologies for companies that want to get into digital.

ADAM SHAPIRO: But everything you just said, and the company a lot of people love to hate, Facebook, I want to ask you this question-- you can't live without almost all of the companies you just mentioned-- got to have Amazon, got to have Apple, got to have Microsoft-- very easy to live without Facebook. Some of us have deleted Facebook from our mobile devices. So what really is the future for Zuckerberg? I wouldn't bet against him, but seems like he's the one who, at that company, is the one that's in the most, perhaps, precarious situation.

RAY WANG: They are in the most precarious position. I agree with that. I think they've got to get out of there one-trick pony of being in ads. They can actually do payments, they can enable small businesses, they can start getting into the search side of the house. They can start creating-- you see Facebook for enterprise, so some of their ability to build out-- their ability to collaboration and enterprise software.

They've got capabilities in some of the consumer areas that haven't emerged yet on the AR VR side. So a lot of their moonshots have not yet come to fruition. But it's not for lack of trying. They're in the same position Google was about five, six years ago before they get heavy into the cloud and heavy into the enterprise side.

EMILY MCCORMICK: All right, thank you so much Ray Wang, Constellation Research Principal Analyst and Founder.