Google Receives a Rare Downgrade, Here's What the Analyst Says
An upcoming decision in the Department of Justice's (DOJ) antitrust case against Google could lead to a decline for Alphabet shares in the coming months, according to Citizens JMP.
The firm has downgraded the tech giant from market outperform to market perform" on Thursday, citing the potential for antitrust penalties that could significantly impact Google's U.S. search distribution and its revenue.
This downgrade follows an August 2024 federal judge ruling that determined Google illegally held a monopoly in both search and text advertising markets. As a consequence of this ruling, the DOJ has proposed that Google be required to divest its Chrome browser.
With a final ruling anticipated by August 2025, we predict that this case will be a primary concern for investors in the upcoming year, thereby restricting multiple expansions, said analyst Andrew Boone in a Thursday note to clients. Boone further noted that no good remedy has been presented to the judge, increasing the risk that any sanctions imposed on the tech company will be severe.
Boone suggests the court could potentially compel Google to break up its Android and Chrome operations, and prevent the company from offering revenue sharing payments. With the best-case scenario likely restricting Google's ability to offer revenue share contracts for search distribution in the U.S., we feel it is prudent to stand on the sidelines after shares returned 37% in 2024. We await greater legal clarity before adopting a more positive stance and see the shares as fairly valued, the analyst added.
Accordingly, Boone estimates that Google's loss of search access point distribution could reduce its 2026 earnings per share by $1.15.
Despite this rare downgrade, the majority of Wall Street analysts remain optimistic about Alphabet. Out of the 58 analysts covering the megacap tech company, 47 maintain a strong buy or buy rating. The average price target of approximately $208 suggests nearly a 10% upside from Tuesday's close.