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“Is Now the Time to Invest in Alphabet Amid Speculations of a Google Split?”

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Antitrust Trouble: What’s Next for Alphabet’s Stock?

Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) shareholders face uncertainty as recent court rulings raise questions about the company’s future. In August, U.S. District Judge Amit Mehta determined that Google had misused its market dominance, stifling competition and innovation in violation of antitrust laws.

The U.S. Department of Justice (DOJ) submitted potential remedies, including a drastic proposal to break up the tech giant.

Image source: Getty Images.

Considerable Options Under Review

It’s important to note that the DOJ is weighing various remedies to address Google’s market practices. While the idea of a breakup is alarming, many alternatives are less severe:

  • A separation of Alphabet into smaller companies
  • Requiring Google to share data used in its search results
  • Limiting how it gathers data from other websites for its algorithms
  • Prohibiting payments to rivals like Apple for default search engine positions
  • Restricting Google’s use of Android, Chrome, Play, and other products to enhance its search engine.

The final decision rests with the judge, who can select from the DOJ’s recommendations or create a mix of remedies.

In response, Google expressed strong opposition, stating that these “radical proposals could harm consumers, businesses, and developers.” The company added that the DOJ’s suggestions “exceed the legal issues at hand” and intends to provide a detailed response.

Why a Breakup is Unlikely

Investors worried about a breakup should consider historical context. In 2000, Microsoft was found to be a monopoly, and although the court aimed to split the company, the decision was partly rescinded on appeal. Microsoft ultimately settled with the DOJ, changing some business practices instead of breaking up entirely.

Although breaking up monopolies was common in the early 1900s, it has become rare in recent decades. A significant example occurred in the 1970s when AT&T, which held control over nearly all phone services in the U.S., was forced to split into seven regional companies after an eight-year legal battle.

Implications for Investors

A decision on these matters will not be made quickly. The judge has scheduled a hearing for April 2025 and plans to announce a ruling by August. Given that Google intends to appeal the verdict, legal proceedings could extend for another five years, prolonging speculation.

In the meantime, business operations will continue as usual. Google maintains a stronghold on the search market, accounting for 90%. This dominance fuels its leading position in digital advertising, commanding 27% of the market last year. Additionally, Google Cloud ranks as the third-largest cloud infrastructure provider, serving 10% of that market. The field of artificial intelligence also presents significant growth potential for the company.

If a breakup were to occur, some analysts suggest it could unlock value for shareholders. Certain parts of Alphabet’s business, such as YouTube and Waymo, might be undervalued when considered collectively. Gene Munster, a noted tech analyst, estimates a breakup could enhance the company’s worth by 15% to 20%. Moreover, current shareholders would receive shares in any resulting entities.

For now, the fear surrounding the verdict has led to a 15% drop in Alphabet’s stock from recent highs. This presents an opportunity for investors, as the stock trades at 23 times earnings—significantly lower than the S&P 500’s average of 30 and beneath Alphabet’s decade-long price-to-earnings average of 30.

This suggests that investors should focus on the fundamentals and consider buying Alphabet stock amidst the volatility.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Alphabet, Apple, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Apple, and Microsoft. The Motley Fool recommends specific options related to Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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