Known more as a search and cloud computing giant, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is also clearly looking to expand into other high-growth verticals. Indeed, the openness of regulators to certain large deals in the tech sector makes the U.S. market one that rewards investors who stick with the giants over the long-term.
The specific vertical Alphabet has reportedly been pursuing is cybersecurity, offering privately-held Wiz $23 billion to acquire the company. Unfortunately, this deal has fallen through, with many speculating antitrust concerns being behind the decisions. Additionally, Wiz’s management team noted that the company will likely be pursuing an initial public offering (IPO), citing this as the reason for turning down the offer.
That said, there’s always the potential for Alphabet to pursue another company, or find a way to enter this market on its own. Let’s dive into what may be in store for Alphabet as a potential cybersecurity play.
Deal with Wiz Is Dead
Just days after announcing plans to acquire cybersecurity startup Wiz for up to $23 billion, the deal is dead in the water. That’s unfortunate for many Alphabet shareholders, as many were clearly excited about this deal potentially going through and having yet another growth engine to spur the company’s next phase forward.
Of course, the premium Alphabet would have paid for this transaction, and the debt the company would have likely had to take on to complete the deal, would have been a net negative over the near-term. Thus, it’s no surprise to see Alphabet stock bounce back following the announcement that the deal fell through. (Shares initially fell as much as 3% following the news, with some of the move tied to macro concerns.)
The deal was expected to face antitrust issues, considering Alphabet’s dominance in search and its use of ad tools. Accordingly, perhaps this deal falling through is for the best. For now, investors need to ponder whether another deal could be on the horizon, or if this was the company’s best shot at entering this market.
Why Another Deal Could Materialize
I’m bullish on the idea that Alphabet may pursue another deal in the future. This Wiz deal had the potential to improve Alphabet’s position in the competitive cloud market, providing an easy vertical to integrate into its suite of software solutions for customers.
The company’s cloud unit has turned solidly profitable, enhanced by its increased investment in AI tools. Indeed, a move into cybersecurity would complement these recent strategic investments well, and there are a number of smaller firms to choose from in this space, should Alphabet choose to enter this market.
Right now, it’s all going to be speculation with respect to whether a deal could materialize or not. I think Alphabet could simply transition some talent to this space, acquiring a much smaller firm with a tiny footprint, and growing its presence over time. Whatever the move, it’s clear that Alphabet’s team isn’t satisfied with its current growth rate, and wants more. That’s a good thing for current investors. Accordingly, GOOG stock still looks like a buy to me here.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
