Alphabet’s (GOOGL) search engine business helped it build a trillion-dollar empire. However, this key pillar of its business nearly slipped away from its grasp due to regulatory pressure.

Despite Alphabet’s diversification into cloud computing, video streaming, AI, and other ventures, search remains a key pillar for the tech firm as it generated $198 billion in revenues in 2024—more than half of the $350 billion in total revenue generated by the company that year.

However, the tech juggernaut’s dominance in search and online advertising has invited scrutiny from regulators as it has been fighting a legal battle over the past five years. 

In 2024, Judge Amit Mehta ruled that Google was a monopoly and illegally maintained its search monopoly through its practice of entering into exclusive deals that made Google the default search engine for various devices and services, preventing rivals from competing against it. 

A notable example of this is the search deal with Apple (AAPL), where Alphabet pays an estimated $20 billion annually to make Google the default search engine on the Safari web browser across all Apple devices.

In the wake of this landmark ruling, there were hopes among regulators and rivals that Alphabet would be forced to divest its lucrative search business and dominant Chrome browser.

In fact, a forced spinoff of the Chrome browser and the Android mobile operating system was proposed by the U.S. Justice Department.

Besides its search business, Alphabet’s Chrome browser has played a pivotal role in decades-long stranglehold over the Internet as it remains by far, the most widely used browser globally, with 3.5 billion users. It has also served as the company’s distribution channel for its ad and search businesses.

Amidst the uncertainty surrounding the ruling and the remedy period that accompanied it, artificial intelligence (“AI”) startup Perplexity made an unsolicited $34 billion bid for Chrome.

Fortunately for the tech juggernaut, it was able to escape this scenario when Judge Mehta issued a ruling on the antitrust case earlier this week. 

Judge Mehta barred Alphabet from entering into exclusive deals to make Google the default search engine on devices and browsers. Moreover, it was forced to share search data with competitors. However, the company would be permitted to continue paying for the inclusion of its search engine and other products—effectively preserving its lucrative deal with Apple.

Mehta said that the Justice Department’s proposed remedies went too far, and that advances in generative AI have effectively served as a counterbalance to Google’s search dominance.

AI tools from OpenAI, Anthropic, and Perplexity have altered how users gather information. Instead of relying on traditional search engines for queries, many have turned to using tools like ChatGPT, Claude, and even Alphabet-owned Gemini for information gathering and other search queries.

Alphabet’s stock is up 9% since the September 2 ruling. While the company has been spared from losing its dominant internet browser, it is still involved in various legal battles due to its dominance in other segments.

The company recently said that it will continue to fight the ruling requiring it to make changes in its app store after it lost a lawsuit against Epic Games. 

Meanwhile, Google is set to enter yet another trial next month to determine what remedies will be imposed in a separate case where it was found to be holding an illegal monopoly in online advertising technology. 

Time will tell how Alphabet fares against the regulatory crackdown it is currently facing. For now, it remains firmly in control of the key segments that are crucial to its business.

Investors should keep a watchful eye on the company’s antitrust litigations and take these battles into account when assessing Alphabet’s value and long-term viability.

Best regards,

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

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