After a federal judge ruled that Google (GOOG) (GOOGL) will not have to sell its flagship Chrome Web browser as part of a major antitrust case, Apple (NASDAQ:AAPL), which has a multibillion-dollar search deal with the tech giant, traded higher on Wednesday.
Delivering his 223-page ruling at the U.S. District Court for the District of Columbia, Judge Amit Mehta also said on Tuesday that Apple (NASDAQ:AAPL) and other device and Web browser developers, such as Mozilla, can continue to receive revenue-sharing payments from Google (GOOGL).
Apple (NASDAQ:AAPL) shares spiked in reaction as the judgment removed a key overhang for the Cupertino, California-based company, which, according to Morgan Stanley, receives $20B annually from Google (GOOGL) for search advertising placed on its Safari browser.
With the iPhone maker trading ~4% lower this year compared to the ~12% rise in the NASDAQ Composite Index (COMP:IND) and its sharp outperformance in 2024, reviews on the Apple (APPL) stock picked up on Seeking Alpha after the ruling.
The Bulls
“Now, the company can negotiate with other search providers or create a bidding system for default placement,” wrote Seeking Alpha analyst Rick Orford in Apple Stock: It’s Still A Solid Buy Following Court Ruling. “Now that the legal framework has been established, Apple can pursue a partnership with Alphabet for Gemini or OpenAI for ChatGPT without fears of being entangled with antitrust matters.”
“This event might actually provide some indirect support for Apple’s competitive positioning in its own product ecosystem,” added SA analyst Income Generator in Apple: It’s Time To Buy (Rating Upgrade). “Some bullish investors might have even worried that a strict ruling in this case against Alphabet might ultimately inspire similar rulings against Apple at some point down the road.”
“Despite downward revisions to free cash flow and EBITDA, the risk/reward profile now favors an upgrade,” opined Dhierin Bechai, SA Investing Group Leader of The Aerospace Forum, wrote in Apple: Why I Am Upgrading To Buy Despite Headwinds. “The upside isn’t dramatic, but continued iPhone and services momentum could drive further gains if fundamentals don’t deteriorate further.”
The Bears
“Judge Amit Mehta ruled that Google can continue paying Apple to be the default search engine on Safari, with two main changes. One, Google cannot pay for exclusivity,” argued YR Research in Apple: Alphabet Ruling Directs Attention Back To Lack Of Growth Prospects (Downgrade). “Say the current revenue share agreement sets a 50%/50% split, with no exclusivity, Google could ask for 55%, which means Apple’s cut will be reduced to 45%.”
“While the immediate impact from the ruling is good news for AAPL, I am downgrading my investment thesis to neutral from very bullish,” said Steven Fiorillo in Apple: No Longer Bullish For The First Time In 7 Years Despite The Google Ruling (Downgrade). “Because I believe that AAPL’s underinvestment in artificial intelligence (AI) and cloud services is going to be extremely negative for them in the future.”
“Judge Mehta’s ruling surely protects Apple’s profitability in the short term and offers it some flexibility for the future,” added Luca Socci in “A $20B Sword Of Damocles Hangs Over Apple.” “But a deeper question arises: has Apple, by any chance, accepted to trade strategic dominance and innovation for near-term cash comfort?”
“Apple has noticeably been lagging behind other tech titans in the AI race, focusing primarily on incremental initiatives that seem more defensive rather than transformative,” wrote Weebler Finance in Apple: Sell While Ahead – Weak AI And Mature Markets Signal Caution. “This is a problem for the shareholders of the company, given the stock’s lofty premiums, which assume high growth to come.”