Alphabet's Antitrust Challenges: A Potential Buying Opportunity Amid Legal Uncertainties

Alphabet's Antitrust Woes Have Made It a Cheap Buy for Bulls

The Google parent's stock price has fallen more than 20% from a July peak, and recently closed at a six-month low. While most Big Tech names have partially recovered from a summer rotation out of the sector, Alphabet has continued to fall. In August, a federal judge ruled that Google illegally monopolized the search market, with Bloomberg News later reporting that a bid to break up the company is one option being considered by the Justice Department. "Alphabet is the only name in the Magnificent 7 to trade at what we consider a discount, and it is a significant discount," said Gregg Abella, chief executive officer of Investment Partners Asset Management. "I'm not saying the regulatory issue isn't a concern, because these cases can go on for a long time and no one knows how to handicap the outcome, but it has presented an opportunity." The share-price drop has left Alphabet trading at around 18 times forward earnings, cementing its place as the cheapest stock among the Magnificent 7. It also trades at a discount to its long-term average and the overall Nasdaq 100 index, which is trading at 25 times. Shares in the search giant edged higher, rising 0.6% on Tuesday. "It's getting to the point now where the valuation is starting to overwhelm the overhang," said Eric Clark, portfolio manager at Accuvest Global Advisors, who said he bought back some shares in Alphabet last week after trimming his stake about six weeks ago. "I'm feeling much better about getting paid to absorb some of that risk and volatility at the current valuation." The antitrust issues in the US -- and in Europe, where Alphabet recently lost a court case over a $2.6 billion fine related to shopping services -- have caused some jitters on Wall Street. Morgan Stanley recently cut its Alphabet price target to US$190 from $205, saying that antitrust-related uncertainty will put a narrow -- and lower -- band on the multiple. Evercore ISI's Mark Mahaney also cut his price target because of concerns around antitrust trials and potential remedies. Still, Mahaney remains bullish, saying that even in a worst-case scenario where Google is no longer allowed to bid for exclusive search distribution deals in the US, the related reduction in traffic acquisition costs would go a long way to offset this. "Put it this way, Google could lose as much as 60% of its exclusive deal search revenue and still suffer only a single digit percentage loss in EPS," he wrote, reiterating an outperform rating on the shares. The regulatory issue comes as investors increasingly question how much companies like Alphabet are shelling out on AI, and when this spending will begin to pay off. Some investors are also concerned about Google facing more competition from the likes of OpenAI and Microsoft Corp. as they try to draw people away from traditional web search and toward chatbots that can answer users' questions. These issues may explain why Alphabet is relatively less liked than some megacap peers. Roughly 83% of analysts recommend buying the stock, compared with rates above 90% Nvidia Corp., Microsoft Corp. and Amazon.com Inc. Still, Wall Street firms aren't slashing their estimates on antitrust risk so far. The consensus for Alphabet's 2025 revenue has risen by 6.6% over the past three months, according to data compiled by Bloomberg, a sign of continued optimism about the company's prospects despite the risk of antitrust remedies. "I think the regulatory issue has been priced in," said Jason Britton, chief investment officer of Reflection Asset Management. "I virtually guarantee it will see more fines, but it has so much cash on its balance sheet that they won't be material. This is really just a slap on the wrists."

Analysts rework Google parent price target on search, antitrust concerns

In 1601, "abrasive," "divestiture" and "theoretical" were among several words that were used for the first time in print, according to Merriam-Webster. Related: Analyst reboots Google parent's stock price target on DoJ case The word "monopolist" -- meaning one who monopolizes -- also made its debut that year. And 423 years later on Aug. 5, U.S. District Judge Amit Mehta used that very term in his ruling that found Google's parent, Alphabet (GOOGL) , violated U.S. antitrust law with its search business. "After having carefully considered and weighed the witness testimony and evidence, the court reaches the following conclusion: Google is a monopolist, and it has acted as one to maintain its monopoly," Mehta wrote in his opinion. Kent Walker, Google's president of global affairs, said the company intended to appeal Mehta's findings. This is one of several cases that the search, advertising and cloud-services giant is contending with in the U.S. as well as Europe, as regulators look to rein in the tech sector. "As the tech world awaits the next steps in this landmark case, the decision gives US government enforcers momentum in their broader antitrust challenge to Big Tech," attorneys at Goodwin Procter wrote in an Aug. 14 post. Alphabet fighting several legal battles "The [Department of Justice] is currently engaged in litigation against Apple, alleging that Apple has used its monopoly in the smartphone market to stifle competition and raise prices," the firm added. The post also noted that the Federal Trade Commission has recently filed antitrust lawsuits, accusing Amazon (AMZN) of illegally maintaining its monopoly position in the online retail industry and Facebook parent Meta Platforms (META) of illegally thwarting competition through its acquisitions of Instagram and WhatsApp. Related: Analysts reset Alphabet stock price target before key September court event "And lurking behind Judge Mehta's recent decision is the impact of AI technology in online markets, which has already begun to face scrutiny from antitrust regulators worldwide," the post said. An interesting component of the Court's opinion is its discussion of the rise of artificial intelligence and concern that Google would use its market power to stifle competitors in the AI market, the firm said. Goodwin Procter cited Microsoft (MSFT) CEO Satya Nadella's testimony warning of a "nightmare" scenario if Google's search term dominance continues, given Google's vast trove of search data and its value in training AI. TheStreet's Versace: Alphabet litigation a long process TheStreet Pro's Chris Versace wrote in August that whatever the eventual outcome is, "we expect that will take a long period of time, likely measured in years." "We expect Alphabet/Google will appeal these rulings just like we saw when the DoJ put the bullseye on Microsoft back in the late 1990s," he said. "That suit, which started in May 1998 and looked to break up Microsoft, was eventually settled in mid-2004 following Microsoft's appeal of the June 2000 verdict and its November 2001 agreement with the DoJ." In the coming 12 months, Versace said he would continue to focus on the fundamentals of the search and advertising and cloud businesses, and Google's AI ambitions. "This could very well come down to Google writing a large check and making some modest policy/operations revisions," he added. Meanwhile, on Sept. 10, the company lost its final legal challenge against a European Union penalty for giving its own shopping recommendations an illegal advantage over rivals in search results. The EU's Court of Justice upheld a lower court's decision, rejecting the company's appeal against the 2.4 billion euro -- $2.7 billion -- penalty from the European Commission, the 27-nation bloc's top antitrust enforcer. One day earlier, the U.S. Justice Department, joined by a coalition of states, and Google each made opening statements to a federal judge in Alexandria, Va., who will decide whether Google holds a monopoly over online advertising technology. Analyst: Search is 'still Google's game to lose' The company is also being sued by longtime rival Yelp (YELP) , which accuses Google of using its dominance to control the local search market. Alphabet is scheduled to report third-quarter results next month. Year-to-date, the company's shares are up nearly 13% and are almost 15% higher from a year ago. More AI Stocks: Investment firms issued research reports on Alphabet on Sept. 16, including Truist, which affirmed a buy rating and $196 price target on the company after hosting an expert call regarding generative-AI and its impact on search. While gen-AI is transforming search engines into answer engines, upending a $220 billion industry and threatening Google's hegemony by fueling the emergence of AI-native platforms like OpenAI and Perplexity, this is "still Google's game to lose", the firm said. Truist further notes that it sees much of gen-AI search volume as "incremental, not cannibalistic." And the firm says Google will continue to dominate monetizable core search in the near-to-medium term given its advertiser scale, brand and trove of proprietary transactional data. Evercore ISI analyst Mark Mahaney lowered the firm's price target on Alphabet to $200 from $225 while maintaining an outperform rating on the shares. The analyst said that "probable medium-term uncertainty" over the Department of Justice antitrust trials and their likely remedies will limit the potential for any near-or medium-term material rerating of the shares. Following a call with a legal expert, Mahaney said a "worst-case" scenario is more likely than the market assumes. A worst-case scenario would be one in which Google is no longer allowed to bid for exclusive search distribution deals in the U.S., and another company like Microsoft buys out its exclusive search distribution deals, Mahaney said. This could lead to a material share loss by Google on the search access points covered by those distribution deals, which amounts to roughly half the U.S. search market, he added. Related: Veteran fund manager sees world of pain coming for stocks

Evercore and JMP paint a worst-case scenario for Alphabet amid DOJ antitrust trials (GOOG)

At least two Wall Street analysts reiterated their bullish rating on Alphabet stock (NASDAQ:GOOGL) over the weekend and weighed in with commentary on the antitrust cases surrounding the tech giant and the possible impact from it on the company's earnings. Evercore ISI believes probable medium-term uncertainty on GOOGL over the DOJ anti-trust trials and their likely remedies will limit the potential for any near-or-medium-term material re-rating. The research firm said even under its "worst case" scenario -- where Google is no longer allowed to bid for exclusive search distribution deals in the U.S. and loses up to 60% market share -- the impact to GOOGL EPS could still only be in the single-digit percentage range, as the likely material savings in traffic acquisition costs of more than $20B from elimination of the deals would offset a significant amount of the lost search revenue. Looking at comparable examples of default search distribution being changed, like Firefox in 2014 and in 2021, a potential loss of 20% to 50%+ market share for Google on its exclusive search distribution access points is very likely, they said. On the search case, Evercore thinks there is a very significant possibility that Judge Mehta's injunction will include the elimination of Google's exclusive distribution deals, and based on Microsoft executives' public statements and past actions, Evercore believes it highly likely that Microsoft would bid to capture those deals that Google has held for many years. Analysts at JMP also reaffirmed their "Market Outperform" rating and believe the market has fully factored in the risk of an adverse antitrust penalty that limits Google's ability to bid on default search placements. "With overall search demand seeing benefits from AI and YouTube estimates derisked, in our view, cloud demand broadly healthy, aided by incremental AI demand, and cost efficiencies still early, with a new CFO reviewing Alphabet's cost structure, we continue to recommend shares, especially given the recent pullback, as we believe it more than accounts for the potential impact to EPS," JMP said in their September 15 note. "Specifically, we believe an antitrust penalty that limits Google's ability to bid on default search placements represents a potential $1.23 headwind to EPS, which equates to 12% of consensus 2026E EPS of $10.08," they added.

Alphabet stock faces DOJ trial risks, but still an 'Outperform' - Evercore By Investing.com

On Monday, Evercore ISI made a revision to its price target for Alphabet Inc. (NASDAQ:GOOGL), reducing it to $200 from the previous $225. The firm has, however, maintained its Outperform rating on the tech giant's stock. The adjustment comes amid concerns regarding the potential outcomes of the ongoing Department of Justice (DOJ) antitrust trials involving Alphabet's Google and their potential remedies. The firm's stance remains positive on Alphabet's long-term prospects despite the lowered price target. The new target is partly based on a 20-times multiple of the projected 2026 earnings per share (EPS) of $10.16. The forecast takes into consideration the medium-term uncertainties that could arise from the DOJ's antitrust trials against Google, which may affect the company's valuation in the near to medium term. Evercore ISI's analysis follows a legal expert webinar held on September 6 and a review of Judge Mehta's decision regarding the case. The firm suggests that a "worst-case" scenario is more probable than the market expects. In this scenario, Google could be prohibited from bidding for exclusive search distribution deals in the U.S., potentially leading to a significant loss of market share if competitors like Microsoft (NASDAQ:MSFT) were to secure these deals. Despite the possibility of Google losing between 20% to 50%+ of its search access point share, which represents about half of the U.S. search market, Evercore ISI believes that the impact on Alphabet's EPS would be minimal. Even with a 60% loss in market share, the effect on earnings could be in the single-digit percentage range, due to the substantial savings in Traffic Acquisition Costs (TAC) that would accompany the loss of these deals. This financial cushion is a key reason for the firm's continued confidence in Alphabet's stock performance. In other recent news, Alphabet Inc's Google is under scrutiny by European Union antitrust officials over its advertising technology practices. While a breakup of the company was previously suggested, sources indicate that this is not expected at this time. Instead, the EU is focusing on halting Google's alleged anti-competitive actions in the adtech sector. Simultaneously, the Data Protection Commission in Ireland is investigating Google's compliance with EU data protection laws in its development of the artificial intelligence model, Pathways Language Model 2. In the U.S., a former Google executive's intention to "crush" competition in the online advertising market came to light during an ongoing antitrust trial. Evidence presented at the trial indicates Google's aggressive strategy towards its competitors. On the financial side, Truist Securities maintained a Buy rating on Alphabet shares, citing the shift in search engines due to generative AI technologies. Goldman Sachs (NYSE:GS) also reaffirmed its Buy rating on Alphabet stock, highlighting the potential growth of Alphabet's Cloud business driven by AI. These developments underscore Alphabet's involvement in various sectors and the potential challenges and opportunities it faces. The company's approach to integrating AI technologies and its stance on data protection and anti-competitive behavior are key factors in these ongoing investigations and market evaluations. Alphabet Inc. (NASDAQ:GOOGL) continues to be a topic of discussion among investors, especially with its recent price target revision by Evercore ISI. To further enrich this conversation, InvestingPro offers a couple of insights that could be pertinent for investors considering Alphabet's stock. According to InvestingPro, Alphabet holds more cash than debt on its balance sheet, which may provide a degree of financial stability amidst the uncertainties of the DOJ antitrust trials. Additionally, the company is trading at a low P/E ratio relative to its near-term earnings growth, which suggests that its stock might be undervalued when considering its growth potential. From a data perspective, Alphabet's market cap stands at an impressive $1.94 trillion, and the company has a P/E ratio of 22.52, with a slight adjustment in the last twelve months as of Q2 2024 to 21.43. The revenue growth during this period was 13.38%, indicating a strong financial performance. Furthermore, Alphabet's gross profit margin was 57.64%, showcasing its ability to maintain profitability. For those looking for more in-depth analysis, InvestingPro offers additional tips on its platform, including insights into Alphabet's position as a prominent player in the Interactive Media & Services industry and its ability to generate strong returns over the last decade. For investors wanting to delve deeper into Alphabet's financials and forecasts, they can find more than ten additional InvestingPro Tips on https://www.investing.com/pro/GOOGL, which may aid in making more informed investment decisions.

Google antitrust penalties now fully priced in: JMP By Investing.com

JMP Securities believes that the recent decline in Alphabet's (NASDAQ:GOOGL) stock price has fully accounted for the potential impact of antitrust penalties. With shares down 18% from their July highs, analysts say, "The market has fully factored in the risk of an adverse antitrust penalty that limits Google's ability to bid on default search placements." According to JMP, an antitrust penalty limiting Google's bidding for search placements could pose a $1.23 per share hit to Alphabet's earnings per share (EPS), which equates to 12% of the consensus EPS estimate of $10.08 for 2026. Despite this, JMP remains optimistic about Alphabet's ability to mitigate the impact, noting that the company could leverage advertising, push notifications, and cost adjustments to offset the potential losses. "Our analysis does not capture Alphabet's reaction, making it conservative," analysts wrote, indicating that the company's adaptive strategies could lessen the financial blow. JMP also highlighted several positive factors for Alphabet, including the growth of search demand driven by artificial intelligence (AI), derisked YouTube estimates, healthy cloud demand bolstered by AI, and ongoing cost efficiencies. With these drivers in mind, analysts remain positive on Alphabet shares, particularly after the recent pullback. "We continue to recommend shares, especially given the recent pull back as we believe it more than accounts for the potential impact to EPS," the firm adds, maintaining a Market Outperform rating and $200 price target on the stock. They add that if the $1.23 EPS hit materializes, the price target would still stand at $173 based on a 24x multiple of 2025 EPS. At its most recent closing price of $157.46, Alphabet is trading at about 19x JMP's 2025 EPS estimate of $8.35, well below the firm's $200 target. JMP remains confident in Alphabet's vast total addressable market (TAM) and profitability across search, video, and cloud segments.