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The ruling in the latest Alphabet (NASDAQ:GOOG) antitrust case has mixed implications for the firm. Investors are seeing it as a chance to buy shares, but there are still some important risks.
Being forced to share its search data could have serious implications for the firm’s competitive position. But the judge rejected claims for the company to be broken up.
Monopolistic power
Alphabet had been found guilty of using unfair practices to maintain its status as a monopoly in the online search market. And it has benefitted from this in two main ways.
First, it has managed to establish itself as the default option for internet search queries. Second, it has gathered significant amounts of valuable data about how its users behave.
The latest ruling largely leaves the first benefit intact. The company does not have to sell off its Chrome business and it can still pay Apple to remain the default search option on the iPhone.
Alphabet does, however, has to share user interaction data – that it has gained by maintaining a monopoly – with competitors. And investors need to think seriously about the implications of this.
Pricing power
Google’s market position has been a key part of its success. Businesses know that it’s (a) the leader in search and (b) the company can place adverts intelligently to target suitable audiences.
The first part of that seems to be largely undisturbed by the proposed remedies. But being required to share its data raises a question over the second part.
Whether the likes of Microsoft being able to create similar products leads to a loss of market share for Google remains to be seen. But I think there’s a real risk to the company’s pricing power.
This is an important part of Google’s future growth prospects. And investors need to weigh this in the context of ChatGPT and Perplexity (as well as Alphabet’s own Gemini) starting to emerge.
Investment equation
A 9% jump on the latest news puts Alphabet shares at a price-to-earnings (P/E) multiple of 24. That’s still the lowest of the stocks known collectively as the Magnificent Seven.
Investors might wonder, though, whether this discount is really justified. The biggest threat – a potential breakup – is off the table, at least for the time being.
On top of this, the company’s cloud computing division has been growing strongly. And increased demand as a result of the growth of artificial intelligence means this looks set to continue.
In other words, despite the stock being more expensive than it was at the start of the week, I think there’s still a lot to like from an investment perspective. And that means it’s worth considering.
Antitrust
Going forward, I don’t think investors can afford to be complacent. The requirement to share its data with competitors could have significant implications for Google’s market position.
On balance, though, I think the latest news is good. And I have a much more positive view of Alphabet shares than I did a week ago.
I suspect a lot of shareholders had been underestimating the possibility of the company having to sell Chrome. But with that threat out of the way (at least for now), I’m considering buying the stock.
