Search has been the core of Alphabet’s (GOOGL) dominance and success. Google became the most popular and widely used search platform globally through its search engine. 

While the company has diversified into many other businesses over the years, its search engine continues to be integral to its operations and generates a significant portion of its revenues.

However, Google’s dominance in search has now attracted antitrust scrutiny from regulators. 

The U.S. Department of Justice (DOJ) is actively considering pushing for a breakup of Google after scoring major victories against the company in antitrust trials.

In October 2023, a federal judge ruled that Google abused its monopoly power in search and search advertising. 

Then in August 2024, Judge Amit Mehta ruled that Google is a monopoly and that it has abused that power in violation of antitrust laws. 

These were considered landmark decisions against one of the world’s most powerful tech companies.

In the wake of these rulings, the DOJ is said to be weighing the option of pursuing a forced breakup of Google.

Breaking up Google could involve separating its search engine from other businesses like YouTube, Google Maps, Google Drive, etc. 

This would dramatically change Google’s business model and structure. As search is the core of Google’s empire, such a breakup would deal a major blow to the company’s dominance and operations.

However, investors don’t seem too worried just yet. Google’s stock barely moved when news of a potential breakup came out.

Looking ahead, the company’s massive AI investments could pay off big time. 

It is pouring billions into technologies like machine learning and computer vision. If they maintain their lead here, it may offset issues from regulators down the road.

From a numbers perspective, Google also isn’t that expensive right now. Trading at around 17.9x Uniform P/E is reasonable for a company its size. And the company’s financials are rock solid overall.

So while the threat of a breakup is there, Google’s AI work and fair valuation provide reasons for optimism. 

As long as the company keeps innovating, the stock could still do well despite regulatory challenges down the road.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

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