Alphabet shares jump on Google Chrome decision

Shares in Alphabet (NASDAQ:GOOGL), Google’s parent company, gained 7% overnight following a US court ruling that the search giant will not be forced to sell off its Chrome browser.

The US Department of Justice has been pursuing a case against Google since 2020 arguing that the company actively maintains a monopoly over online search. It had been pushing for a forced breakup of Google’s empire, with Chrome and the Android mobile operating system both potentially subject to a forced divestment.

But Alphabet shares surged on news that US District Court Judge Amit Mehta, who had previously ruled that Google was operating as a monopoly, had stopped short of a structural breakup of the company when ruling on remedies.

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“Alphabet just dodged a regulatory bullet, and the market is cheering,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.

“Questions remain about the future of search, but with this legal cloud lifted, investors can refocus on growth and innovation.”

Concerns over a forced sale of Chrome had hung over Alphabet’s shares for years, pushing their valuation well below that of its Magnificent Seven colleagues.

Rivals such as DuckDuckGo had expressed their interest in purchasing Chrome should it become available. Perplexity AI, an artificial intelligence (AI) search start-up most recently valued at $18 billion, offered Google $34.5 billion to buy Chrome during August.

While Perplexity’s head of communications said of the offer “this isn’t a joke. We’re good at this,” the FT cited a person familiar with the matter as saying Alphabet did not view the offer as serious.

Serious or not, the bids underscored the intense interest in Chrome and the strategic importance of retaining the browser for Google and Alphabet.

What the rulings mean for Alphabet and Google

While the structure of Google’s empire can stay intact following Judge Mehta’s ruling, there will be some curbs on its business aimed at limiting its monopolistic practices.

Google will not be allowed to have exclusive search agreements. It will also need to share more search data with its competitors, including parts of its search index which maps every website on the internet.

Certain competitors will also be allowed to display Google search results as their own.

Google expressed concerns in a statement following the ruling that data sharing “will impact our users and their privacy, and we’re reviewing the decision closely”. It is likely to appeal against this aspect of the ruling, which could mean the case ends up in the Supreme Court of the US.

Yesterday’s ruling is also not necessarily the end of the road as far as a potential Google breakup is concerned. A separate case, alleging that Google is illegally monopolising online advertising technology, will reach the remedies phase later in September.

How AI changed the Google monopoly debate

Mehta acknowledged in the ruling that the emergence of generative AI (genAI) had a major impact on the remedies proposed.

“The emergence of genAI changed the course of this case,” said Mehta in his ruling.

Much of the market pessimism surrounding Alphabet has centred on fears that its core Search business could suffer as a result of people querying AI chatbots instead of its search engine.

“For Alphabet, the timing couldn’t be better,” said Britzman. “The market had prematurely written the company off in the AI race, a view that looked short-sighted. With cutting-edge models and unmatched distribution, Alphabet is poised to dominate if it can execute well.”

“Concerns around the impact of genAI on the business are fading, with Alphabet validating its ability to navigate this period of transition,” said Scott Devitt, managing director, equity research at Wedbush Securities. “Management is repositioning the business as a winner in the AI space, with strong demand trends and an acceleration in Cloud growth.”

What the Google antitrust decision means for Apple

Shares in Apple (NASDAQ:AAPL) also responded positively to the news, gaining 3% overnight.

The ruling means Google will still be able to pay Apple to pre-load Chrome on its devices.

“Apple emerged as a quiet winner. Its search deal with Alphabet, worth roughly $20 billion annually, remains intact, and the renegotiation window plus the end of exclusivity clauses could give Apple more leverage and optionality down the line,” said Britzman.

This also potentially opens the door for further collaborations between the two businesses.

“We now see a green light for a bigger Gemini AI partnership between Apple and Google with this DOJ case now in the rear view mirror,” said Dan Ives, global head of technology research at Wedbush Securities.

Should you buy Alphabet’s shares?

Alphabet’s shares traded at around 22 times its expected earnings over the next 12 months prior to Judge Mehta’s ruling. This is notably below the level that other Magnificent Seven stocks trade: the next cheapest by this metric is Meta (NASDAQ:META) at around 28 times projected earnings.

“We believe… the discount relative to peers is unwarranted,” wrote Wedbush analysts. “We think focus will now shift towards the positioning of Google relative to megacap peers.”

Wedbush raised its price target for Alphabet’s shares to $245, implying 16% gains from yesterday’s close.