Google Antitrust Case: What's Next for Tech ETFs?
DOJ considers antitrust remedies for Aug. 5 monopoly ruling as investors assess the potential damage.
The U.S. Department of Justice announced late Tuesday that it was considering a possible breakup of Google's units like the Chrome browser and Android operating system.
The leveraged T-Rex 2X Long Alphabet Daily Target ETF (GOOX) was down 4% by midday Wednesday, while broader tech ETFs like the Technology Select Sector SPDR Fund ETF (XLK) were up nearly 1% as semiconductor strength offset the negative Google news.
The DOJ’s landmark antitrust remedy aims to “prevent and restrain monopoly maintenance," the department said in a filing. The DOJ would consider remedies such as "contract requirements and prohibitions; non-discrimination product requirements; data and interoperability requirements; and structural requirements.”
The DOJ was also “considering behavioral and structural remedies that would prevent Google from using products such as Chrome, Play, and Android to advantage Google search and Google search-related products and features—including emerging search access points and features, such as artificial intelligence—over rivals or new entrants.”
The DOJ’s recommendations come after a judge found in August that Alphabet, Inc’s Google, which processes 90% of U.S. internet searches, had built an illegal monopoly.
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.
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.