British Antitrust Case Threatens to Derail Alphabet's (GOOGL) Monopoly

Business Insider

09-07-2025

Alphabet (GOOGL) stock has remained resilient despite facing a major antitrust challenge in the United Kingdom. In late June, the UK's Competition and Markets Authority (CMA) issued a provisional decision to designate Google with 'Strategic Market Status' (SMS) under the Digital Markets, Competition and Consumers (DMCC) Act—part of a broader, escalating effort to rein in its market dominance.
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Although these regulatory developments have added some uncertainty, investors appear largely unfazed. Alphabet's core business remains strong, and the continued momentum of Google Cloud and YouTube, combined with significant investment in artificial intelligence (AI), positions the company well for long-term growth. Given its fundamental strength and ability to weather regulatory pressures, I remain Bullish on the stock's long-term prospects.
Regulators Aim to Relinquish Google's Grip on Search
The UK represents roughly 10% of Alphabet's search revenue—a meaningful share, though not one that poses an existential threat to the company's overall business. Still, the UK's regulatory efforts are significant. Following its provisional designation of Google as having 'Strategic Market Status' (SMS), the Competition and Markets Authority (CMA) is expected to issue a final decision by the end of 2025.
If the designation is upheld, the CMA will introduce a tailored set of conduct requirements for Google. These could include mandates such as implementing 'choice screens' for search engines and enforcing fairer ranking practices, potentially reshaping how Google operates in the UK market.
Choice Screens Threaten Google's Search Dominance
Google has long spent billions of dollars annually to secure its position as the default search engine on smartphones and web browsers. However, the proposed implementation of 'choice screens'—which would present users with a selection of alternative search engines such as Bing or DuckDuckGo—could disrupt that model. These screens may eventually include AI assistants, such as Google's own Gemini, further expanding user options.
Such a shift could have immediate financial implications for Google. Reduced default usage could lead to a decline in search traffic, and by extension, a decrease in advertising revenue. Additionally, it poses a broader threat to Google's tightly integrated ecosystem—spanning Chrome, Android, and YouTube—by making it easier for users to explore services outside of Alphabet's platform. When considering the broader perspective, Alphabet's advertising revenue constitutes a hefty proportion of its total revenue, according to TipRanks data.
Google Navigates Antitrust While Defending AI and Search
Google is cooperating with UK regulators, albeit reluctantly, striking a balance between engaging in negotiations and actively shaping public and political perception by emphasizing perceived benefits of its services, such as how AI Overviews can help users discover local businesses.
The company is no stranger to antitrust scrutiny. The European Union has already faced several high-profile cases resulting in billions of dollars in fines. Meanwhile, regulatory pressure is also mounting in the U.S. In April, the Department of Justice concluded that Google had 'harmed Google's publishing customers, the competitive process, and, ultimately, consumers of information on the open web.'
Alphabet's Financial Fortress: Strength Amid Scrutiny
Despite ongoing regulatory scrutiny around its search and advertising operations, Alphabet's core business remains exceptionally strong. In the first quarter of 2025, GOOGL reported revenue of $90.23 billion, marking a 12% year-over-year increase. Operating margins also improved, rising from 32% to 34%.
Google Services—including Search and YouTube ads—continues to be the company's primary revenue driver, generating $50.7 billion in the quarter. Meanwhile, Google Cloud is emerging as a key profit engine. The Cloud division posted $12.3 billion in revenue, up 28% year-over-year, with operating income jumping to $2.18 billion—more than double the $900 million recorded in Q1 2024.
Alphabet also maintains a robust financial position, with $95 billion in cash and short-term investments. This enables it to make aggressive investments in future-facing technologies. In Q1 alone, the company spent $17.2 billion on capital expenditures, primarily directed toward expanding its data center infrastructure to support growth in Cloud and AI services.
From a valuation standpoint, Alphabet trades at a Price-to-Earnings (P/E) ratio of 20, which is roughly in line with the median for the Communication Services sector. This is notable given Alphabet's superior growth and profitability, suggesting the market may be tempering expectations or pricing in regulatory risks.
Is Alphabet a Buy, Sell, or Hold?
On Wall Street, GOOGL boasts a Strong Buy consensus analyst rating, based on 27 Buy, nine Hold, and zero Sell ratings over the past three months. GOOGL's average price target of $201.16 implies an ~13% upside potential over the next twelve months.
Analyst Brian Nowak of Morgan Stanley (MS) has issued a Buy rating on GOOGL with a price target of $185. Among a few reasons for optimism, he highlighted the potential partnership between OpenAI and Google Cloud. The analyst noted: 'This move is seen as a significant endorsement of Google's AI infrastructure capabilities, which have been developed over the past decade. The partnership not only underscores Google's leading position within the ASIC ecosystem but also suggests a potential acceleration in Google Cloud's growth.'
GOOGL Remains a Long-Term Buy Despite Regulatory Headwinds
In conclusion, despite increasing regulatory pressure, Alphabet's strong business fundamentals, dominant market position, and solid financial footing offer considerable resilience against long-term disruption.
Importantly, the company is well-positioned to capitalize on advancements in artificial intelligence—an opportunity that could fuel substantial growth beyond its core search and advertising operations. While it's essential to monitor ongoing regulatory developments, I remain Bullish on GOOGL's long-term prospects.