Antitrust ruling clears growth obstacles! Google's market value hits $3 trillion

The Zhitong Finance APP learned that the long-awaited antitrust ruling has eliminated a key risk surrounding Google (GOOGL.US) that has persisted for months, allowing the stock price to experience "relief."

On September 2nd local time, U.S. District Court Judge Amit Mehta ruled that Google does not need to divest its Chrome browser or split its Android operating system, while continuing to reject related requests from the prosecution. Google is also not prohibited from paying Apple to ensure its search remains the default option on Apple devices, although the court reserves the right to revisit this arrangement in the future. Additionally, Google is not prohibited from paying distribution partners to pre-install Google Search, Chrome, or its generative AI products. However, Google must share some search index data with competitors to open up competition in the online search market. Meanwhile, the company is no longer allowed to enter into exclusive distribution agreements involving Google Search, Chrome, Google Assistant, and the Gemini application.

The market generally views this ruling as favorable for Google, as the company avoided the worst outcome of having core businesses like the Chrome browser and Android operating system split apart. Boosted by this news, Google’s stock rose over 9% on Wednesday.

Neville Javeri, Senior Fund Manager at Allspring Global Investments, stated, "This ruling clears the runway for further growth opportunities for Google." He added that there are "incredible opportunities" for the stock.

This ruling is also expected to allow Google to continue its upward momentum since announcing its second-quarter earnings report. The report showed that demand for artificial intelligence (AI) products is boosting the company's sales, and its AI products continue to enhance investor confidence in its ability to fend off competitors like OpenAI.

Since then, Google’s stock price has risen over 20%, making it one of the top-performing stocks in the Nasdaq 100 index this year. In the previous months, Google’s stock had struggled due to antitrust risks and investor concerns that AI might erode its $50 billion search business.

Although debates about AI are unlikely to settle in the short term, Wall Street is increasingly confident that Google can hold its ground. The AI features launched by the company earlier this year have received widespread acclaim, and its latest Pixel phone with built-in AI features has also received positive feedback. Sales data from Google and Samsung Electronics indicate that consumers are willing to switch to devices using Google’s Android operating system.

TD Cowen analyst John Blackledge stated, "Given the new AI search features and the rapidly expanding Gemini application, we expect Google to maintain its leading position in traditional search Google's current market value is $2.81 trillion, just about 7% away from $3 trillion. So far, only Apple, Microsoft, and Nvidia have reached this level of market capitalization. Closing this gap may not be difficult. Google's current expected price-to-earnings ratio is about 21 times, while the Nasdaq 100 index is at 26 times. Google's revenue is expected to grow by 14% this year, surpassing the average growth of companies in the Nasdaq 100 index.

However, technical indicators show that despite improving market sentiment, the momentum of Google’s stock may struggle to sustain in the short term. The stock's 14-day relative strength index has surged above 83, the highest since 2017, far exceeding the 70 level that technical traders consider overbought. The current trading price of the stock has aligned with the average target price set by analysts, indicating that Wall Street does not believe there is much room for further upside.

Barton Crockett, an analyst at Rosenblatt Securities, stated that investors "can feel reassured about the short-term risk dissipating," but "long-term concerns about competition in the search business will limit valuation multiples." The analyst also reiterated a "neutral" rating on the stock.

Liam McGarrity, a U.S. investment analyst at Harris Oakmark, remarked, "Google's stock still looks very attractive because it has many high-quality, fast-growing businesses." It is reported that Harris Oakmark has Google as its largest holding. For Liam McGarrity, the core of holding Google lies in believing that it can continue to lead its AI competitors and maintain growth. He stated, "When you consider that it is cheaper than the market while possessing industry-leading AI technology and significant potential in businesses like Google Cloud and Waymo, you find that its trading price is significantly undervalued."