Goldman Sachs: New regulations will hit tech giants like Facebook but some tech stocks could benefit

Zuckerberg's congressional testimony trumpeted the arrival of new regulation in the US tech industry, but it was not necessarily bad news for all tech stocks. David Kostin, chief US equity strategist at Goldman Sachs, recently argued that Zuckerberg's testimony increased the risk of government regulation of consumer data use, and that Facebook and similar companies would be reclassified by major indices such as S&P and MSCI Facebook into the new category of communications services and IT peer threats.

Kostin predicts that the technology companies that remain in the IT sector, such as Cisco, Investec and Global Payments, could be opportunities for investors when companies like Facebook are eliminated. These so-called legacy technology companies are expected to see sales, earnings and profits grow at a slower pace than currently expected in the tech sector as a whole, but their valuations are also lower.

Kostin argues that the decline has dragged down the performance of some individual stocks, which have been tracked by ETFs because they fall into the same category as Facebook. If Facebook were to "draw a line" with these stocks in the future, they would also be an opportunity for investors, including Broadcom, Micron Technologies and Lam Research in the semiconductor sector.

In addition to companies like Facebook, some stocks could be subsumed under communications services, such as Disney, Netflix and Alphabet, the parent company of Google, after Wall Street noted that the S&P and Dow had fallen into technical consolidation territory twice since February, internally because of the Fed's path to rate hikes and because the nine-year bull U.S. technology sector suffered from data privacy, business models and mounting geopolitical friction in the Middle East.

The S&P IT sector index opened higher on Monday, up more than 0.3 per cent at the time of writing, with Facebook down about 0.2 per cent, Cisco up about 0.6 per cent and Investec down about 0.5 per cent.