Can Alphabet Overcome the U.S. Antitrust Case?

Alphabet Stock

Alphabet (NASDAQ:GOOGL) is currently facing significant scrutiny as it battles the U.S. Justice Department in court. The antitrust case brought against Alphabet by the U.S. government primarily focuses on the company’s search business. The Justice Department alleges that Alphabet has maintained a monopoly in this space by incentivizing rivals to set its search engine as the default option on web browsers. The U.S. is seeking various remedies, including changes in business practices, potential damages, and the possibility of restructuring Alphabet.

This antitrust case marks one of the most substantial legal challenges against a major technology giant since the U.S. antitrust lawsuit against Microsoft (NASDAQ:MSFT) in the 1990s. The trial commenced late last month and is expected to extend over ten weeks. Despite the headwinds associated with the ongoing antitrust trial, Alphabet’s stock has displayed resilience, recently outperforming companies like Apple (NASDAQ:AAPL) and (NASDAQ:AMZN). In fact, Alphabet shares have surged by 50% this year and are currently trading less than 5% below their 1-1/2 year high reached in September, while Apple and Amazon have seen declines of over -12% from their recent peaks.

Estimates for Alphabet’s revenue and profits have been on an upward trajectory due to the resurgence in demand for digital advertising. According to Bloomberg, analysts’ projections for Alphabet’s 2024 profits have risen by nearly 8% over the past three months, while sales estimates have increased by almost 2%. Additionally, Alphabet’s valuation appears more reasonable compared to its mega-cap tech peers, with its shares trading at less than 20 times the estimated earnings. This valuation represents a discount when compared to the Nasdaq 100 Stock Index ($IUXX) (QQQ) and falls below the stock’s average multiple over the past decade. In contrast, Apple and Microsoft are trading at premiums to both the market and their historical valuation levels.

Given its attractive valuation, some analysts believe that now is an opportune time to invest in Alphabet’s stock. Manulife Investment Management argues that Alphabet offers premium earnings growth, a robust capital return profile, strong market positioning, and leadership in artificial intelligence (AI). Yet, despite these strengths, its valuation is in line with the broader S&P 500 ($SPX) (SPY), making it an enticing investment prospect.

Manulife Investment Management holds the belief that the antitrust lawsuit against Alphabet is unlikely to significantly impair its business operations. Furthermore, even in a worst-case scenario where the Justice Department prevails, and Alphabet is broken up, the stock could still present opportunities for investors. According to Manulife Investment Management, Alphabet trades favorably from a sum-of-the-parts perspective, with the stock potentially not reflecting the full value of all its businesses. In the event of a breakup, investors might be enthusiastic about acquiring Alphabet’s individual components.

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