Alphabet (GOOG, Financial) slipped 3% today after reports that the U.S. Justice Department is considering breaking up the tech giant. This news follows last week's ruling that GOOG violated search-related antitrust laws. GOOG has announced plans to appeal the ruling, but the case could take years to resolve.
- If GOOG loses the appeal, a breakup seems unlikely. However, it could involve separating GOOG's primary businesses: Search, Android, and Cloud. Other segments like YouTube, Chrome, and Gemini AI might also be affected. The antitrust case focused on Google Search, alleging that GOOG spent billions to establish an illegal monopoly.
- GOOG reportedly spent up to $26 billion to secure deals with various companies, including $20 billion paid to Apple (AAPL, Financial). These investments helped GOOG dominate around 90% of the online search market.
- The DOJ may target these contracts, especially the one with AAPL. Removing this contract could force iDevice and Mac users to choose their default search engine, potentially increasing competition. AAPL's iPhone and iPad lead their markets globally, but GOOG remains dominant when including all Android-powered devices.
A breakup of GOOG cannot be entirely ruled out due to its extensive global reach via Android and Chrome. Even if users are required to choose their preferred search engine, GOOG's market share might see negligible loss. Google Search is well-established among users who may not switch even if prompted. A hefty fine alone may not create the competitive market the DOJ seeks.
In summary, while a breakup is concerning, it is not guaranteed and could take years. The recent court ruling will impact GOOG for some time, but quarterly results and AI demand will likely influence the stock's direction more in the near term. Unless AI demand fades, GOOG is poised to recover from its current decline.
