Citi reaffirmed its confidence in Apple Inc (NASDAQ:AAPL) by maintaining a Buy rating and a $255.00 price target. The endorsement comes despite recent developments in an antitrust case involving Google, which has implications for the tech giant. The Department of Justice (DOJ) has put forth a proposal on October 8, which includes both behavioral and structural remedies that could impact Google's Traffic Acquisition Costs (TAC) payments to Apple. These payments, which amounted to $20 billion in 2022, represent about 5% of Apple's revenue and 17% of its operating profit.
The antitrust case against Google is expected to evolve into a protracted legal struggle, with a ruling on the remedies not anticipated until late summer 2025. Any subsequent appeals could extend the timeline further. Despite this uncertainty, Citi believes that Apple's Safari browser remains an asset and notes that the company is actively seeking alternatives. These alternatives could include forging new partnerships or developing its own search engine capabilities.
Apple's ongoing advancements in artificial intelligence, particularly with Siri, and its collaborations with OpenAI, as well as potential partnerships with other large language model (LLM) providers, are seen as strategic moves. Citi suggests that these initiatives could diminish consumer reliance on web search, thus offsetting any potential challenges arising from the DOJ's scrutiny of Google's payments to Apple.
The analyst's comments underscore the belief that Apple's diverse strategies and innovations will continue to add value, even as the company navigates the potential fallout from Google's antitrust case. While the outcome of the DOJ's proposal remains uncertain, Citi's stance indicates confidence in Apple's ability to adapt and thrive in the face of industry challenges.
Google's AI unit, DeepMind, and former Google researcher, Geoffrey Hinton, have been awarded Nobel prizes in chemistry and physics respectively, for their significant contributions to AI technology. This recognition of AI research by the Nobel committee has sparked discussions about the categorization of AI within the Nobel framework.
The DOJ has proposed remedies to dismantle Google's search dominance, which could significantly impact the company's profitability and advancements in AI. These remedies include barring Google from collecting sensitive user data, making its search results and indexes available to competitors, and allowing websites to opt out of having their content used to train Google's AI products.
BMO Capital Markets has reduced its price target for Alphabet (NASDAQ:GOOGL), Google's parent company, from $222.00 to $215.00, while maintaining an Outperform rating. Bernstein has also reiterated a Market Perform rating on Alphabet shares with a price target of $180.00. Despite facing several antitrust actions, Alphabet investors have shown minimal concern over the DOJ's proposals.
Finally, Google has been mandated by U.S. District Judge James Donato to make substantial changes to its Android app operations. This ruling requires Google to allow Android users to access and download competing app platforms and use alternative in-app payment systems. Google plans to appeal this verdict.
InvestingPro Insights
To complement the analysis of Apple's position amid Google's antitrust case, it's worth examining Google's financial health and market standing. According to InvestingPro data, Alphabet Inc (NASDAQ:GOOGL), Google's parent company, boasts a substantial market capitalization of $2 trillion, reflecting its dominant position in the tech industry. The company's P/E ratio of 23.03 suggests a reasonable valuation relative to its earnings, especially considering its robust revenue growth of 13.38% over the last twelve months.
InvestingPro Tips highlight that Google "holds more cash than debt on its balance sheet" and is "trading at a low P/E ratio relative to near-term earnings growth." These factors indicate financial stability and potential undervaluation, which could be crucial as the company navigates the antitrust challenges. The tip noting that Google is a "prominent player in the Interactive Media & Services industry" underscores its market strength, which may help it weather regulatory pressures.
For investors seeking a deeper understanding of Google's position, InvestingPro offers 7 additional tips that could provide valuable insights into the company's prospects amidst the ongoing legal scrutiny.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.