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Antitrust probe fails to halt Alphabet share price gains

The Alphabet [GOOGL] share price, along with the rest of the big tech sector, has hit more record highs in recent days, despite the looming threat of an ongoing antitrust saga that threatens Alphabet and other tech industry behemoths.

Alphabet is facing a fifth US lawsuit against Sundar Pichai’s (pictured) Google — the latest one focused on its Google Play Store. And it could yet get worse, with antitrust experts warning that more inquiries into the world’s tech giants are on the way, following US president Joe Biden’s 9 July executive order, which aims to crack down on these companies and address a lack of competition in the tech sector.

Taking a look at the wider theme on Opto’s ETF performance screener, big tech is up 4.04% over the last month (as of 16 July’s close), taking the third spot out of 34 industry themes and ahead of the S&P 500’s 2.38% gain. The Invesco QQQ Trust [QQQ] ETF is responsible for most of the gains, which tracks the Nasdaq 100 — the 100 largest non-financial companies by market cap listed on the Nasdaq. Alphabet’s Class A shares have the seventh-highest weighting in the ETF at 3.61%.

4.04%

Rise of the big tech theme over the past month

  

Alphabet share price continues to rise

The Alphabet share price continues to climb higher, whichever way you cut it, despite the growing threat from the US government and the antitrust lawsuits. Over the last year, the Alphabet share price is up 62.38% (through 16 July), with a year-to-date rise of 47.12%. And the past month has seen Alphabet’s share price increase 5.71% to $2,539.40 as of 16 July’s close, just 1.82% shy of its all-time high reached on 14 July.

 

What’s the latest antitrust lawsuit facing Alphabet?

The Alphabet share price has so far appeared to be unaffected by the latest in a number of lawsuits brought against it. The most recent complaint targets the Google Play Store and the 30% commission fee developers are forced to pay. MarketWatch reports that Google also imposes technical barriers that “strongly discourage or effectively prevent third-party app developers from distributing apps outside the Google Play Store,” and forces its proprietary apps to be pre-loaded on Android devices.

Josh Stein, North Carolina Attorney General and a lead plaintiff in the Google lawsuit, says: “No matter how big a company is, it has to play by the rules … Google isn’t. It is using its monopoly power to cut off competition and increase its power and profits ... by forcing Google Play Store customers to overpay for apps.”

“No matter how big a company is, it has to play by the rules … Google isn’t. It is using its monopoly power to cut off competition and increase its power and profits ... by forcing Google Play Store customers to overpay for apps” - Josh Stein

 

Ominously for Alphabet and its peers, significant change could be on the way, with wide consensus in the US that change is needed. Pat Garofalo, director of state and local policy at the American Economic Liberties Project, told MarketWatch: “Federal, state, and local government agree: big tech is a big problem.” He adds that “for the antitrust movement to achieve what it wants to achieve, laws have to change”.

Alphabet is also facing search engine focused lawsuits from the US Justice Department and another action seeking to declare Google a public utility and to regulate it. Alphabet faces a record $5.15bn fine after the European Commission ruled in 2018 that Google used the Android mobile operating system to thwart rivals. Google will attempt to reverse the fine in September, according to Reuters.

 

Is sector rotation underpinning the Alphabet share price?

It appears that a wider macro rotation is outweighing any downbeat antitrust sentiment. The S&P 500 has been propelled to new highs this year. The index gained 7.3% from 12 May through the first week of July. That growth has been driven by just eight stocks, including Alphabet, along with Apple [APPL], Amazon [AMZN], Facebook [FB], Microsoft [MSFT], Netflix [NFLX], NVIDIA [NVDA] and Tesla [TSLA], reports The Wall Street Journal, which has accounted for over 50% of the S&P 500’s gains in the period.

In June, big tech helped drive the S&P 500 to all-time highs in seven consecutive sessions — its best streak since 1997. Founder of hedge fund investment firm Valley Forge Capital, Dev Kantesaria, is backing the big tech sector. “I’m very bullish on companies that can provide strong organic growth and predictable growth … certainly, the big technology companies will be able to do that,” he told The Wall Street Journal.

“I’m very bullish on companies that can provide strong organic growth and predictable growth … certainly, the big technology companies will be able to do that” - Dev Kantesaria

 

The strong performance in tech stocks over recent months provides a sharp contrast with earlier this year, as investors bought safe-haven assets that shore up the US economy — shares of energy companies, banks and other financial firms jumped, while Treasury yields gained. However, some disappointing economic data and worries about the Delta variant of the virus have caused volatility in stock and bond markets lately, curtailing some investors and analysts’ optimism about the US economy’s recovery from the COVID-19 pandemic.

Besides economic headwinds, the prevailing sentiment remains bullish, and tech stocks are reaping the benefit, as borne out from Wall Street. Based on 28 analysts offering 12-month price targets for Alphabet Class A shares, the stock has an average price target at $2,809.00, which represents a 10.62% increase from the last price of $2,539.40, according to TipRanks.

Disclaimer Past performance is not a reliable indicator of future results.

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The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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