Google Antitrust Case: Measuring the Tech ETF Fallout

While the investor herd focused on Monday’s global selloff, the Google antitrust case ended in dramatic fashion as a federal judge found Alphabet Inc guilty of illegally maintaining its search monopoly. 

The landmark case has added to the recent tech fallout and malaise as exchange-traded funds with the biggest exposure to Google stock, such as the Roundhill Magnificent ETF (MAGS), have fallen as much 16% in the past month. 

“After having carefully considered and weighed the witness testimony and evidence, the court reaches the following conclusion: Google is a monopolist, and it has acted as one to maintain its monopoly,” U.S. District Judge Amit Mehta wrote in Monday’s opinion. 

The stunning decision by the U.S. District Court for the District of Columbia strikes at the core of Google’s primary line of business, as it has spent massive financial resources to secure and maintain dominance as the world’s search provider.  

What Is the Google Antitrust Case?

The Google antitrust case is a legal battle alleging and finding that Google has abused its dominant position in the search engine and online advertising markets. The U.S. Department of Justice and several states accused Google of anti-competitive practices, such as paying billions to be the default search engine on devices and suppressing competitors. 

The Aug. 5 ruling determined that the parent company, Alphabet Inc, was in violation of Section 2 of the Sherman Act, which aims to protect competition and fair trade by prohibiting monopolization, attempted monopolization, or conspiracies to monopolize.

For more detail see our previous article, What Does the Google Antitrust Trial Mean for ETFs?

How Much of Alphabet’s Revenue is Google Search?

Nearly half of Alphabet’s revenue is generated by Google Search. In the second quarter of 2024, Alphabet's revenue amounted to nearly $85 billion, with more than $42 billion coming from Search and related services, according to the multinational tech conglomerate’s SEC filing. 

With such a high amount of revenue making up Alphabet’s top line, a major draw from that contribution without any compensating factors has the potential to reduce the company’s bottom line. 

Potential Impact on Google Stock, Tech ETFs

The ruling against Alphabet in its antitrust case has the potential to negatively affect the overall value of the company’s GOOG and GOOGL shares, as well as that of its competitors like Apple and the tech ETFs that include Google stock as a major component. 

• Google stock: Potential decline due to increased costs and potential market share loss. 
• Apple stock: Mixed impact. Could benefit from increased leverage in negotiations, but potential loss of revenue from Google search deal. 
• Competitors: Potential gains for search engines like Bing and DuckDuckGo, but challenges in overcoming Google's brand dominance. Broader antitrust actions could lead to increased regulatory oversight, affecting other tech giants and affecting related ETFs. 
• Broad tech sector ETFs: The Technology Select Sector SPDR Fund (XLK) is one of the largest tech ETFs, and it holds significant exposure to Google's parent company, Alphabet. 
• Nasdaq-100 Index ETFs: Similar to XLK, the Invesco QQQ Trust (QQQ) is heavily weighted towards technology stocks, including Google. 
• Advertising-focused and communication ETFs: While broader than just advertising, the Communication Services Select Sector SPDR Fund (XLC) includes tech companies with significant advertising revenue. It also includes GOOG as a top holding with roughly 10% weighting. 

ETFs focused on specific tech sub-sectors like search, cloud computing, or digital advertising could be particularly affected by the Google antitrust case ruling. While the impact might be less pronounced, broad-market ETFs like the SPDR S&P 500 Trust ETF (SPY) could also experience volatility due to the overall market reaction.