Alphabet: DOJ Antitrust Case Eyes Google Breakup

• Estimated fair value: $209
• Morningstar rating: 4 stars
• Morningstar Economic Moat Rating: Lat
• Morningstar Uncertainty Rating: Average

Why it matters: This is arguably the most material antitrust case of the three facing Alphabet. The remedies could hurt Alphabet’s cash engine, Google Search. As part of its remedial framework, the DOJ included divesting Chrome and Android — a highly unlikely outcome. Investors are reminded that in order to enforce a separation, the DOJ must demonstrate that other remedies will not work on their own. Beyond a breakup, we believe there will likely be restrictions on Alphabet’s exclusive deals with companies like Apple AAPL and Samsung, both in the DOJ proposal and in the eventual ruling by US District Judge Amit Mehta. We do not consider this result to be materially destructive to Alphabet.

The bottom line: We maintain our $209 per share fair value estimate for Alphabet and continue to see the firm as well-placed to navigate antitrust. While there is overall risk, as evidenced by the recent launch and subsequent share price action, we believe investors can acquire Alphabet at an attractive price.

The big picture: Even as the antitrust case looms large, we’d urge investors to see Alphabet’s strengths as an overall business, with the firm well-positioned in many markets, including advertising, video, public cloud and generative AI. We’re still positive about the company’s efforts to diversify away from search-based advertising. In particular, we believe its investments in Google Cloud will generate value as interest in AI accelerates public cloud spending.