Will the Google Antitrust Court Case Weigh on Big Tech Stocks?

One of the biggest antitrust trials in decades kicked off last week as Google’s search engine was in the dock, accused of paying to maintain its dominance. While it could be years before a decision is reached, the outcome may set a precedent for future tech regulation.

• Google is accused of paying billions per year to guarantee its status as the number-one search engine.
• The court case is likely to have no material impact on Google, according to Evercore ISI’s Mark Mahaney.
• How to invest in big tech: the iShares Exponential Technologies ETF is up 12% in the past year.

Big tech has often drawn the ire of antitrust regulators, and a landmark trial involving Google [GOOGL] kicked off on 12 September. The ruling could result in the biggest shakeup of the tech landscape in recent years.

The antitrust trial brought by the US Department of Justice (DOJ) accuses Google of paying billions every year to ensure it maintains its status as the de facto search engine. Google had an approximately 90% share of the search market in 2020 — the share of smaller players such as Microsoft’s [MSFT] Bing, Yahoo and DuckDuckGo pale in comparison — while “advertisers spend more than $80bn annually just to reach general search users”, according to a filing unsealed in August.

“A company with monopoly power acts unlawfully only when its conduct stifles competition,” Amit Mehta, the judge appointed to the case, wrote in the filing He added that the Google “brand name has become so ubiquitous that dictionaries recognise it as a verb”.

DuckDuckGo’s Vice President of Communications, Kamyl Bazbaz has questioned why Google needs to resort to paying out billions of dollars if it’s so confident in its product.

“DuckDuckGo provides something extremely valuable that people want and Google won't provide: real privacy. But Google makes it unduly difficult to use DuckDuckGo by default,” wrote Bazbaz in a thread posted on X, formerly Twitter.

Apple Bows to Pressure to Remove Lightning Connector

On the second day of the trial, DOJ Senior Trial Counsel Kenneth Dintzer told the court that Google had paid Apple [AAPL] in the region of $4–7bn in 2020 to guarantee it was the iPhone’s default search engine.

Apple itself has been engaged in a charger war with the EU. The bloc wants all smartphone makers to switch to the USB-C port by the end of 2024 and, as expected, the iPhone 15, unveiled by the Cupertino company last week, won’t feature its proprietary lightning connection.

“The move to a USB-C connector is a success story for EU regulators over big tech despite efforts by Apple to resist it in 2020,” Ben Wood, Chief Analyst at CCS Insight, told Opto following the iPhone 15 launch event, referring to when the EU first passed the law mandating that devices with wired charging use a USB-C connection.

“It will irk some people but ultimately it’s a victory for common sense becoming the standard connector for all consumer electronics devices,” Wood added.

Regulatory Oversight Unlikely to Impact Apple or Google

Ditching the lightning connector isn’t expected to have any impact — the USB-C’s ubiquity means that almost everyone is likely to have a spare cable in their home. A bigger risk to growth right now, however, could be China. Although Beijing has denied reports that government workers have been banned from using iPhones, it has cited unspecified security concerns.

Wedbush analyst Dan Ives isn’t too concerned, however. In a post to X last week, Ives wrote that the Wedbush team had been speaking to industry contacts in China “to better decipher the loud noise” around the situation. The impact will be “negligible” and iPhone 15 sales should “surprise on upside”, he wrote.

As for Google’s antitrust case, “most investors don’t believe that something like this is going to materially impact Google going forward. They think that’s too much of a stretch,” Mark Mahaney, who heads the internet research team at Evercore ISI, told CNBC last week.

“Antitrust and regulatory concerns have been issues for Google investors for the better part of seven years now, but we haven't seen anything materially impact Google's earnings, its cash flow, its revenue,” Mahaney said.

The Outcome Could Set a Precedent

As for outcomes, prosecutors could pursue the break-up of Google’ s ad business under the Sherman Law — previously used to break up Standard Oil in 1911 and AT&T in 1982. Those sceptical that this will be the remedy pursued might point to the Microsoft antitrust court case, which resulted in the DOJ agreeing to settle, having originally pursued a break-up, in November 2001.

Whatever the decision, it’s likely to set a precedent. Other big tech companies will be watching closely and may have to make changes to the way they conduct business in order to avoid cases being brought against them in the future.

No Clear Winners from Increased Oversight — Yet

There aren’t likely to be any clear winners from the DOJ reining in Google’s search dominance, given how long it could take for a decision to be reached.

In the near term, regulators are more likely to be keeping an eye on whether and how big tech companies use AI responsibly.

Adobe [ADBE], IBM [IBM] and Nvidia [NVDA] have joined Palantir [PLTR] and Salesforce [CRM], among others, in promising that they’ll develop AI applications that are “safe, secure and trustworthy”, in the words of a 12 September White House briefing. The commitment is voluntary, so companies will face no action if they fail to stick to their word, but making the commitment could help to keep them on regulators’ good sides.

How to Invest in Big Tech

ETFs, or exchange-traded funds, offer an economical and diversified way to invest in a variety of stocks within a particular theme.

Funds in Focus: the iShares Exponential Technologies ETF

The iShares Exponential Technologies ETF [XT], which holds Google parent company Alphabet along with a number of AI names, has allocated 51.4% of its portfolio to information technology (IT) as of 15 September. Healthcare, financials, consumer discretionary, communications, materials, utilities, real estate and consumer staples comprise the rest. The fund is up 11.8% in the past year and up 7.7% in the past six months.

The Invesco AI and Next Gen Software ETF [IGPT], which holds Alphabet and Nvidia, has allocated 61.1% of its portfolio to software as of the end of June, while entertainment and media account for 12.4% and 10.5% respectively. Semiconductors and semiconductor equipment have a 2.8% allocation. The fund is up 7.7% in the past year and up 4.9% in the past six months.

The Global X Social Media ETF [SOCL], which holds Alphabet and Meta, has allocated internet software and services 87.6% of its portfolio as of 31 August, while IT services account for 8.7%. Packaged software has a weighting of 2.1%, while other consumer services, financial conglomerates, data processing services and recreational products all have weightings under 0.6%. The fund is up 23.1% in the past year and up 6.3% in the past six months.