Black swan for Google: Barclays described a scenario of Alphabet's stock collapse by 25%

Google's holding company Alphabet could lose up to 25% of its market value if a court forces the tech giant to sell its Chrome browser, according to Barclays. The court is expected to decide on how to punish Alphabet in the case of monopolizing the search advertising market by the end of the summer. For now, Barclays rates the chances of a split of the company as low and still recommends investors buy the stock, which has fallen in price by more than 10% this year. 

Alphabet shares could plummet 15-25% if U.S. District Judge Amit Mehta requires the company to sell its Chrome browser, Barclays analyst Ross Sandler wrote in a June 2 note. He noted that «the likelihood of a Chrome sale, while still low,» has «increased» since the parties' final arguments in court on May 30. The judge is expected to rule on the sanctions in August - which will determine the fate of Google's search empire, wrote Yahoo Finance.

«This would be a significant event, a black swan for Alphabet stock,» the publication quoted an analyst note as saying. - The stock would obviously fall sharply if the scenario materializes, as no investor we spoke to thinks such an outcome is likely.»

According to Sandler, a forced sale of Chrome would not only cause Alphabet's stock to fall, but also reduce earnings per share by about 30%. According to the analyst, Chrome has 4 billion users and accounts for 35% of Google's search revenue.

«We don't know what the court will decide in terms of sanctions. [On Friday] we listened all day to the closing arguments and at times we felt worse and at times we felt better (in terms of the impact on Google stock),» he said.

Sandler added that if Alphabet's split is forced, «the most likely buyers» of the Chrome browser would be «well-funded AI companies like OpenAI, Anthropic or perhaps Perplexity.»

At the same time, while Barclays maintains the assessment of Alphabet shares at the level of Overweight, recommending investors to buy them. The Bank expects that Alphabet quotes will outperform the market, despite the fact that since the beginning of the year securities have lost almost 11% of the value, while the broad market index S&P 500 rose over the same time by 1%. In trading on June 2, shares of Alphabet fell by 1.6% to $169.

In August 2024, the company lost a trial in an antitrust lawsuit brought by the U.S. Department of Justice. Judge Mehta found that the tech giant had monopolized the search engine market, specifically the markets for «general search» and ads with text ads that appear at the top of the search results page. However, the court has yet to determine the punishment for Alphabet.

On Friday, May 30, Google and the U.S. Department of Justice concluded their deliberations. The agency pushed for a judge to order Google to sell the Chrome browser, share search data with competitors and stop entering into exclusivity agreements that ensure Google's status as the default search engine on mobile devices and browsers. The company has such agreements with Apple and Samsung.

Google is waiting for a final ruling in the antitrust case so it can appeal the decision. «We remain confident that the court's initial ruling was wrong and look forward to appealing it,» the company said on Social Network X.

Alphabet shareholders would be better off if the company were split up, accounts DA Davidson analyst Gil Luria. In May, he wrote that his clients - large institutional investors - favor an «explosive split» of Google, rather than the «point spin-offs» the U.S. Justice Department is proposing in the company's monopoly case.

Luria believes that the tech giant should spin off each of its businesses into a separate publicly traded structure: video hosting YouTube, Google's search engine, Google Cloud, Waymo's unmanned cab service and areas related to AI. According to his calculations, based on reported data from Alphabet and its competitors, Google's individual businesses would be worth significantly more if traded separately. Currently, Alphabet's market capitalization is $2 trillion. However, according to Luria's calculations, if the businesses are valued separately, their combined value would be $3.7 trillion.