Apple Stock Investors Just Got Great News. Is It Time to Buy?

Key Points

• A federal judge last year found that Alphabet had an illegal monopoly in internet search, but he recently declined to prohibit the company from paying search distribution partners such as Apple.

• Alphabet pays Apple more than $20 billion per year as part of an exclusive arrangement that makes Google Search the default option on iOS devices; the judge's ruling preserves that revenue stream.

• Nevertheless, Apple is still the second-most expensive "Magnificent Seven" stock, and the company has now gone eight years without introducing a groundbreaking new product.

• 10 stocks we like better than Apple ›

Shares of Apple (NASDAQ: AAPL) have declined 4% this year, making it the second-worst performing member of the "Magnificent Seven." Only Tesla has declined more sharply. But Apple recently caught a big break when a federal judge ruled on remedies in an antitrust lawsuit involving Google-parent Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG).

Here's what investors should know.

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A federal judge rejected the most severe remedies proposed by the Justice Department

In recent years, the U.S. Department of Justice (DOJ) has filed and won two antitrust suits against Alphabet. The first dealt with its monopoly in internet search, and the second dealt with its monopoly in adtech software. The key events in the first lawsuit are listed below:

• October 2020: The DOJ filed an antitrust lawsuit against Google-parent Alphabet, accusing the company of monopolizing the search advertising market.
• August 2024: Federal Judge Amit Mehta ruled against Alphabet, determining the company had engaged in illegal practices to maintain its monopoly in search advertising.
• November 2024: The Department of Justice proposed that Alphabet be forced to sell its Chrome browser and be prevented from paying Apple for default search placement on iOS devices.
• September 2025: Federal Judge Mehta rejected the most severe remedies proposed by the DOJ. He said Alphabet can no longer negotiate exclusive search deals, but the company can continue paying Apple to distribute its search engine.

The ruling is undoubtedly good news for Alphabet and its shareholders, especially the part about maintaining control over Chrome. As the most popular web browser, Chrome not only affords Alphabet insight into consumer behavior, which enables targeted advertising, but also funnels users to Google Search, which generates advertising revenue.

However, Apple was also a beneficiary of the remedies imposed by the judge. Alphabet pays Apple more than $20 billion annually as part of an exclusive arrangement that made Google the default search engine on iOS devices. That's why your iPhone automatically selects Google when you enter search text into the Safari browser bar.

Mehta prohibited exclusive agreements in the future, meaning Apple can feature alternative search engines alongside Google. But he allowed Alphabet to pay partners to distribute its search engine. That means the ruling preserves a substantial revenue stream for Apple's services business while simultaneously freeing the company to explore other options, such as the artificial intelligence (AI) web search tool the company is reportedly developing.

The consensus target price increased modestly, but Apple stock still looks expensive

Following the antitrust ruling, Craig Moffett at Moffett Nathanson upgraded his rating on Apple from sell to neutral. Wamsi Mohan at Bank of America raised his target price to $260 per share from $250 per share. Other analysts also tweaked their forecasts, resulting in the average target price increasing to $237 per share, up from $231 per share.

However, the new consensus still implies about 4% downside from the current share price of $240. And Apple still has an expensive valuation compared to other big technology companies. The stock trades at 36 times earnings, which looks particularly rich when analysts estimate earnings will increase by just 10% annually over the next three years.

Those figures give Apple a price-to-earnings-to-growth (PEG) ratio of 3.6. Comparatively, Alphabet has a PEG ratio of 1.7, Amazon's is 1.9, Meta Platforms' is 1.5, Microsoft's is 3, and Nvidia's PEG ratio is 1.2. Tesla is the only member of the "Magnificent Seven" with a higher PEG ratio than Apple.

I have frequently argued Apple stock is overvalued, and my opinion has not changed. The company dodged a bullet with the recent antitrust ruling, but it still faces other hardships. Most notably, its innovation engine has stalled. After launching the iPhone in 2007, the iPad in 2010, the Apple Watch in 2015, and AirPods in 2017, the company has gone eight years without a groundbreaking new product.

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Bank of America is an advertising partner of Motley Fool Money. Trevor Jennewine has positions in Amazon, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.