Understanding the Monopoly Ruling
A recent ruling by a U.S. federal judge declared that Google, owned by Alphabet, violated antitrust laws by maintaining a monopoly. This centers around deals with smartphone manufacturers like Apple and Samsung, ensuring Google is the default search engine. For instance, Google's deal with Apple alone boasts over $20 billion annually.
Potential Changes in Search Engine Defaults
Alphabet plans to appeal, but if the ruling stands, it might end Google's exclusive search deals. Instead of default settings, users could select their preferred search engine during device setup. This change, known as a "choice screen," could reduce Google's automatic dominance.
Historical Context with Microsoft
Microsoft faced similar antitrust issues in 2000 due to bundling its operating system with its browser. Despite the ruling, Microsoft's market position stayed strong. Similarly, Google's name is synonymous with search, which might mean minimal market share loss even if exclusivity ends.
Financial Implications for Google
Losing default status could impact Google's revenue, seen in its warnings about potential revenue drops from losing Safari's default. However, as one of several options, Google might still retain significant market share. Reduced exclusivity could mean renegotiated, less lucrative deals, but substantial impact appears unlikely.
Investment Outlook for Alphabet
Despite uncertainty, Alphabet’s long-term impact from the ruling could be minor. Google’s dominance predated these deals, suggesting its position remains strong. Bing and newer AI-powered search engines face challenges in capturing market share. Alphabet’s recent Q2 results show AI contributing to growth in monetizing search queries. The stock trades at a forward P/E ratio of 18 times 2025 estimates, presenting a potential buying opportunity for long-term investors.
In summary, while the monopoly ruling introduces uncertainty, Alphabet's foundational strengths and growth avenues in AI suggest that investors might view recent stock dips as a chance to buy.
