Alphabet (GOOGL) Discount Tied to Regulatory Risk, But Analyst Sees Upside

Alphabet Inc. (NASDAQ:GOOGL) is one of the best big tech stocks to buy right now. Bank of America analyst Justin Post noted on August 12 that investors are awaiting a key Department of Justice ruling on remedies for Google’s search business, a development he sees as a critical near-term driver for Alphabet’s stock. While the legal process could stretch into 2027 due to appeals, even a neutral outcome could help remove some of the current regulatory overhang.

Post outlined three potential areas of action the DoJ may take: a possible divestiture of Chrome, changes to traffic acquisition cost (TAC) payments for default search placement, and requirements for broader search data sharing. He cautioned that a Chrome divestiture would be highly disruptive, given the integration benefits across Alphabet’s ecosystem.

The scene on the divestiture side has already become interesting after Perplexity, the AI-powered web search engine, made an offer to acquire the Chrome browser for $34.5 billion.

On the other side, the market is already anticipating the removal of exclusive search deals and the addition of “choice screens.” However, Post sees the greatest risk in any move to scale back traffic acquisition costs (TAC) agreements, which could reduce Google’s query share and open doors for AI-driven rivals. As a comparison, the company is expected to pay an estimated TAC of $17.5 billion to Apple in 2026. Expanded data-sharing rules could also erode Google’s advertising edge.

The analyst believes that the courts’ imposition of choice screens and limited changes on TAC/ data sharing should be positive for market sentiment, as well as for the stock.

Alphabet trades at a discount to the S&P 500, which Post attributes in part to these regulatory risks, but he maintains a Buy rating with a $217 target. This compares conservatively to the consensus high price target of $250.

Alphabet Inc. (NASDAQ:GOOGL) is the parent company of Google and a pioneer in internet-related services and products, including online advertising technologies, search engines, cloud computing, software, and hardware.

While we acknowledge the potential of GOOGL as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.