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It’s been a tough week in court for Google (GOOG, GOOGL).
A day after a California judge ruled that the company must open Android to third-party app stores, the Justice Department said in another case that it could propose that the tech giant open up some of its businesses, such as the Chrome browser or Android, would sell. , to break its search dominance.
And how did Wall Street respond to a potentially seismic event that could reshape the technology landscape forever? Shrug: Google shares fell less than 2% on Wednesday after the DOJ’s split recommendation.
Part of the muted response has to do with the slow pace of legal proceedings. Even if judges rule against Google in every subsequent decision, the final negative outcome will still be years away. But Wall Street is also betting that such a drastic decision would be so difficult to implement and so destructive in its consequences that a more modest solution would be more likely.
Like separating conjoined twins, cutting off Google’s intertwined businesses poses enormous challenges, and it almost seems hard to believe. And many still don’t.
“The street is looking at it and thinking, despite all the scary headlines and the noise, the chances of a breakup are minimal,” said Wedbush analyst Dan Ives.
Investors are largely looking past Google’s legal troubles and instead latching onto Mountain View’s growth vision, powered by its cloud business, AI initiatives and advertising empire.
In a 32-page proposal, Justice Department lawyers laid out a framework of options for how the court should dismantle Google’s monopoly power in search. The possible solutions ranged from the most severe – breaking up the company – to more limited plans, such as forcing Google into a data-sharing agreement with rival search engines. But even with the toughest remedy on the table, investors are still waiting for more guidance before making any major moves. In that reading, what initially seems like denial sounds pragmatic.
“We believe Google’s valuation currently largely discounts associated regulatory risks, but the market is looking for more clarity on pending issues before skewing the stock in one direction over the other offer,” said Angelo Zino, senior equity analyst at CFRA Research.
Google’s stock performance year-to-date has lagged most of its Magnificent Seven peers and ranks fifth, up about 15% and behind the broader market’s gains of about 21%. So Wall Street may already have priced in the regulatory risks. Moreover, an outcome that forces Google to change its business practices, rather than divest, could push its shares higher if investors see the ruling as merciful punishment.
“If regulators use a light touch on Google, it could act as a catalyst and help the company’s stock price,” Zino said.
The muted market reaction also reflects a more cautious wait-and-see attitude from investors. On November 20, the DOJ is expected to provide a more detailed document outlining the solutions.
“Overall, we do not believe the high-level framework will change much for Google stock in the near term,” JPMorgan said in a note on Wednesday, adding that Wall Street’s focus will shift to earnings in the coming weeks and to the more substantive submission in November. .
Google will also have a chance to respond in court. For now, the company describes the administration’s proposals as “radical and sweeping,” fraught with unintended consequences that will harm consumers and American innovation. Google Search is so enmeshed in the way people use the Internet that it would be unthinkable to fundamentally change it in the near future. as the government suggests, the company’s blog post seemed to say.
A break is possible. But Wall Street doesn’t believe it.
Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.
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