In a shocking forecast that could send ripples through the tech industry, Barclays analyst Ross Sandler has projected a staggering 25% decline in stock price for Alphabet Inc. (NASDAQ: GOOGL). This prediction hinges on the outlandish possibility that the court may rule in favor of an antitrust break-up of the company, forcing them to divest their Chrome browser. While Sandler paints this scenario as a “black swan” event meaning highly improbable it still has raised eyebrows among investors. Here’s a deep dive into why this warning should garner attention and analyse its implications on the tech giant’s stock and overall valuation.

Chrome Browser Central to Alphabet’s Revenue Model

Chrome is not simply a browser, it is a linchpin product of Alphabet’s corporate strategy. With over 4 billion users globally, it remains the most dominant browser by a margin. This is especially critical since advertising remains the largest source of revenue for Alphabet and any disruption in traffic due to a claw back in governance would spell disaster for shareholder value. Further complicating matters are the deals that Alphabet has secured, in particular, the partnership with Apple. Chrome is set as the default browser on iOS devices, which has allowed Alphabet to widen its user base.

The potential divestiture of Chrome would likely be more impactful than just losing the browser; many of these important partnerships could terminate as well. If Chrome were to be spun off, the impact on search traffic, deals, and business operations would be significant and would cause a loss of confidence from investors.

The driving concern stems from the ongoing case filed against Google by the Department of Justice. Google has been accused of employing anti-competitive practices revolving around the market share it captures for searches. The accusation is that because Google controls Chrome, the company tends to promote its other offerings, especially the search engine, resulting in little to no competition. As expected, Alphabet will appeal any antitrust judgment against them; however, this dispute is expected to take years to resolve.

The ambiguity alone may be sufficient to persuade investors to reevaluate their positions. This prolonged litigation increases uncertainty regarding Alphabet’s stock, raising the potential for short-term losses even as the company gears up for a protracted battle.

Devastating Impact Caused by Stock Price Crash

If the court does rule in favor of the antitrust lawsuit and commands Alphabet to divest Chrome, the repercussions on the company’s stock could be catastrophic. Sandler’s estimate suggests that a 25% drop in Alphabet’s stock price would send its value back to where it stood in early 2023, a dramatic decline from its current level of around $167.71. Simply put, Chrome contributes significantly to the profits of Alphabet, and without it, the growth in terms of value would be limited. Such a reaction to the stock’s value is likely to encourage risk-averse investors to withdraw funds, further accelerating the downfall.

In case Alphabet loses Chrome, along with the staggering void it would create in the business model, the company may also suffer a strategic disadvantage in the race towards achieving AI supremacy. Competing corporations such as Microsoft, Meta, Amazon, and OpenAI also strive to reach unparalleled heights in AI technology, engaging in increasingly aggressive competition for leadership in the industry. Losing Chrome would make it more challenging for Alphabet to hold on to the leadership of the competition, particularly with AI innovations poised to alter the landscape of search and advertising. 

Notably, Microsoft’s Bing, which is usually seen as lagging far behind Google Search, is making efforts to catch up by adding AI features like Copilot. If Alphabet had to abandon Chrome, Microsoft’s Bing could become more appealing because AI would be at the core of the search experience, making it more beneficial. With the use of Microsoft’s AI tools, Bing could pose a real challenge to Google’s market share.

Will OpenAI or Rivals Acquire Chrome?

For investors in Alphabet, one of the key concerns is whether Chrome could be acquired by a rival in the AI industry. A leading figure in AI, OpenAI, could pursue that opportunity. Acquiring Chrome would allow them to directly compete against Google in the search market. Such an outcome could worsen the progression to more visually driven search features powered by AI, further pushing a trend that is steadily accelerating. For Alphabet, this would mark an information access paradigm shift using the web where AI could efficiently perform most operations which would otherwise be performed by the browser.

This is especially troubling for Alphabet as it seeks to develop its own AI capabilities with Gemini, aimed at performing complex searches with high-level AI algorithms.

Alphabet’s Appeal and the Road Ahead

While there is an anticipated 25% loss in stock value, investors can find solace in the fact that Alphabet plans to appeal the offered antitrust resolution. This will likely increase the time frame of uncertainty for the company’s prospects, but on the upside, it means the worst-case scenario is likely several years from actually coming to fruition. Alphabet’s attorneys will probably pursue an aggressive strategy, which should postpone any Chrome divestiture or spin-off plans creating more time to justify the investment. Additionally, the cloud of uncertainty will remain over Alphabet’s stock until the case is settled.

In the meantime, the stock will be at the mercy of the broader market and investor sentiment throughout the legal battle in higher courts. A long, drawn-out appeal process may heighten volatility, resulting in frequent price fluctuations as investors react to court updates. As the company risks losing the Chrome browser, a critical business pivot, Alphabet’s stock faces a fraught forecast. Although Sandler’s predicted 25% drop seems steep, the mere discussion of such a number underscores the sharp losses that loom for Alphabet.

The ongoing legal battle has already triggered storm clouds of swift and impactful shifts, and these additional changes with Alphabet’s stock price could significantly undermine its efforts to sustain dominance in the technology sector. While the antitrust case proceeds, investors associated with Alphabet may have to deal with, and brace themselves for, market volatility and swings. Losing Chrome would likely make it much more difficult for Alphabet to maintain its dominance in the search and AI markets. It is uncertain whether the company would recover from such a blow; however, it is clear that the next few years would be decisive for Alphabet’s standing in the tech industry.