Source: PaxForex Premium Analytics Portal, Fundamental Insight
In recent months, Alphabet investors have been facing significant developments. In August, US District Judge Amit Mehta ruled that Google had unlawfully leveraged its search dominance to stifle competition and innovation, violating antitrust laws. This sparked discussions about potential repercussions, including a breakup of the company.
This week, the US Department of Justice (DOJ) proposed several potential remedies to the judge, with the most extreme being the dissolution of Alphabet. This raises the key question for investors: Is Alphabet stock still worth buying?
The DOJ has outlined a range of possible remedies, many of which are less drastic than a breakup. These include:
- Breaking Alphabet into smaller companies.
- Forcing Google to share the data behind its search results.
- Restricting how Google collects data from other sites to enhance its search algorithms.
- Blocking Google from paying companies, like Apple, to be their default search engine.
- Preventing Google from using its products, such as Android, Chrome, and Play, to bolster its search engine dominance.
Ultimately, the judge will decide which, if any, of the DOJ’s suggestions will be implemented.
Google has not remained silent on this matter. In a blog post, the company criticized the DOJ’s proposals, arguing that they go "far beyond the specific legal issues in this case" and could harm consumers, businesses, and developers. Google intends to respond to these proposals in detail.
Despite the buzz around a potential breakup, history suggests such outcomes are rare. After Microsoft was found guilty of monopoly practices in 2000, the court sought to split the company in two, but the verdict was partially overturned on appeal, leading to a settlement instead. The last major US company to be broken up was AT&T in the early 1980s, illustrating how uncommon these measures are today.
A final ruling in Google’s case won’t come anytime soon, with hearings scheduled for April 2025 and a decision expected by August. Even then, the legal battle is likely far from over, as Google has already indicated plans to appeal. The entire process could take up to five years, meaning the case’s outcome is a distant concern.
In the meantime, Alphabet’s business remains strong. Google continues to dominate the search market with a 90% share, driving its digital advertising business, which controls 27% of the global market. Google Cloud is also a key player, ranking as the third-largest cloud provider with a 10% share. Meanwhile, the company’s investments in artificial intelligence (AI) offer promising growth opportunities.
If Alphabet were to be broken up, it could actually unlock value for shareholders. Segments like YouTube and Waymo are often undervalued in analysts’ assessments. A breakup could lead to higher valuations for these individual businesses. Gene Munster, a tech analyst from Deepwater Asset Management, has suggested that a breakup could increase Alphabet's value by 15% to 20%. In the event of any divestitures, current shareholders would own shares in the resulting entities.
With Alphabet stock down 15% from recent highs, the uncertainty has spooked some investors. However, this dip presents a buying opportunity. Alphabet is trading at just 23 times earnings, significantly below the S&P 500’s multiple of 30 and its own average P/E ratio of 30 over the past decade.
In summary, despite the noise surrounding the legal battle, Alphabet’s strong fundamentals and discounted valuation make it a compelling buy.
As long as the price is above 160.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 166.39
- Take Profit 1: 175.00
- Take Profit 2: 180.00
Alternative scenario:
If the level of 160.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 160.00
- Take Profit 1: 155.00
- Take Profit 2: 150.00
