A recent U.S. federal court ruling declared Google, the subsidiary of Alphabet (NASDAQ: GOOGL), as operating as a monopoly, violating Section 2 of the Sherman Act. This ruling focused on Google’s exclusive deals with leading smartphone manufacturers like Apple (NASDAQ: AAPL) and Samsung to secure its position as the default search engine on mobile devices.
At the core of the issue were substantial multi-billion dollar agreements, such as an $8 billion deal with Samsung and a reported $20 billion annual deal with Apple. In 2021 alone, Alphabet paid over $26 billion to maintain its status as the default search engine on various mobile platforms and browsers.
The Impact of Exclusive Search Deals
Alphabet plans to appeal the ruling, adding a layer of uncertainty in the markets. The potential outcomes could range from the end of exclusive search deals to a breakup of the company, although the latter seems improbable.
Interestingly, Microsoft (NASDAQ: MSFT) played a unique role in the case, despite its own antitrust history related to bundling Internet Explorer with the Windows operating system back in 2000.
Reflecting on Microsoft’s past antitrust issues, one can draw parallels to Google’s current situation, especially with the rise of artificial intelligence (AI) and evolving technological landscapes. While Microsoft’s dominance in operating systems remained largely unaffected by the legal proceedings, a similar outcome could transpire for Google, given its entrenched market presence.
In his ruling, Judge Amit Mehta highlighted Google’s dependence on being the default search engine and its anticipated revenue loss if this status were revoked. However, despite potential revenue setbacks, Google’s market share might remain resilient, akin to Microsoft’s enduring market position post the 2000 ruling.
Image source: Getty Images.
Investment Outlook: Buy, Sell, or Hold?
Despite the current legal uncertainties surrounding Alphabet, the long-term impact may prove minor, considering that Google’s search engine dominance predates the exclusive deals in question. Alternatives such as Bing are unlikely to significantly erode Google’s market share, while emerging AI-driven competitors face scalability challenges.
Moreover, Alphabet’s recent Q2 results demonstrate the positive influence of AI on its search business, opening new avenues for revenue generation through innovative ad formats and enhanced user experiences.
Trading at a forward price-to-earnings (P/E) ratio slightly above 18 times 2025 analyst estimates, Alphabet’s stock appears attractively priced, considering its growth trajectory and future opportunities.
GOOGL PE Ratio (Forward 1y) data by YCharts.
Investors with a long-term horizon may view the recent stock weakness as a buying opportunity, considering Alphabet’s resilient market position and growth potential.
The Case for Alphabet’s Future Success
Looking ahead, Alphabet’s market leadership in search remains robust, supported by advancements in AI and ongoing innovation in the digital landscape. While legal battles and regulatory scrutiny persist, the fundamental strength of Google’s core business suggests a favorable outlook for investors.
Considering historical parallels with Microsoft, which weathered antitrust challenges and evolved successfully, Alphabet appears poised to navigate the current legal landscape and emerge stronger.
Ultimately, while regulatory headwinds may introduce short-term volatility, Alphabet’s enduring competitive advantages and growth prospects position it favorably for long-term investment strategies.