Initially, the optics look terrible. Late last month, news outlets reported that the Department of Justice was about to examine Alphabet’s (NASDAQ:GOOGL) business practices. Though we’ve yet to hear anything definitive, the DOJ is apparently gearing up for its antitrust investigation. As expected, Google stock has not taken too kindly to the recent developments.
Although we’re still in the speculation phase, that hasn’t stopped pundits from advancing their opinions. A common fear is that the government could seek a breakup of the business underlying GOOGL stock. If that were to happen, it would devastate the organization. The appeal for Alphabet isn’t just that it owns the internet. It also leverages multiple lucrative synergies that will keep it relevant for years to come.
Moreover, this is not the first time Alphabet stock has suffered from government oversight. Repeatedly attracting the ire of the European Union, the company has coughed up billions in fines, some $9 billion over the past few years.
Sure, for Google stock, with its $750 billion market cap, that $9 billion is chump change. In a disappointing year in terms of market performance, Alphabet still delivers fundamentally. In its first quarter of 2019 earnings report, the company reported $36.3 billion in revenue. It reported free cash flow of $7.3 billion, and it’s sitting on a cash pile of more than $113 billion.
If any company can afford these fines, it’s Alphabet. In fact, the penalties that the company’s incurred don’t really move the needle for them. But at the same time, it does argue against jumping into GOOGL stock.
The risk is that the DOJ knows this. That’s why they have even more incentive to really punish Alphabet stock.
Google Stock Too Big (and Important) to Break Up
Anyone who remembers the 2008 financial collapse and the subsequent federal actions likely have a bitter taste in their mouths. Rather than give the American people a break, the government decided to help out major corporations; the very ones that almost destroyed global markets.
We all learned a phrase in that period: too big to fail.
But when it comes to GOOGL stock and its possible negative intervention, we’ll likely learn another similar phrase: too big to break up.
Let me just weasel down my argument slightly: no one can tell what the DOJ will do for sure. But with that basic caveat aside, I’m not losing any sleep over it. Neither should you, even if you’re heavily invested in Google stock.
First, we can rely on history to help us navigate the intermediate term. The feds rarely break up big companies. Famously — or infamously, depending on your perspective — the government went after Microsoft (NASDAQ:MSFT). The DOJ won a preliminary victory in 2000, but Microsoft appealed.
Microsoft is very much with us today, giant reach and all. But the overriding reason why I’m confident that Alphabet will remain as it is centers on politics.
In a recent interview with CNBC, President Trump criticized EU fines against American tech firms, specifically naming Facebook (NASDAQ:FB) and Apple (NASDAQ:AAPL). Regarding the sanctions, the President stated, “ … we should be doing this. They’re our companies.”
I find this sudden defense of American tech quite telling. Prior to this dust-up, Trump had no problems blasting any negative news about him as “fake news.” Additionally, conservatives have accused Google of political bias.
But when the EU takes American tech to task, out comes the nationalistic tribalism. But Trump is right because Google stock is too important right now.
Tense Environment Favors GOOGL Stock
Obviously, Alphabet’s days as a startup company are long gone, as GOOGL stock’s market cap attests to. Today, it represents indelible roles in our professional and personal lives.
Moreover, Google is the one of the few things that we can do right, right now. We can’t make cars. We’ve lost respect from the international community. Great swathes of America’s citizenry hate each other. And we’d rather spend trillions killing people than billions educating our own children.
In so many ways, America is a mess. As crazy as it sounds, Alphabet is the company that we have that we don’t deserve.
Now, it’s more vital than ever to keep it the dominant force that it is. Those synergies that I mentioned don’t just exist to make cute little consumer products. Instead, they present formidable challenges to China’s and Russia’s unambiguous ambitions to overtake us in the technological realm.
I know. This is just another example of the big wigs getting away with bloody murder. But with so many adversarial elements working against us, this isn’t the time to grow morals against Google stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.