Google's 'Big Bang Breakup' Proposal Could Unlock $3.7 Trillion in Value
Alphabet’s dominance in search is under pressure as AI technologies disrupt traditional online search. Gil Luria, an analyst at DA Davidson, argues that breaking up Google’s business into separate entities could significantly increase its market value, potentially reaching $3.7 trillion—far above its current valuation of under $2 trillion.
Luria told Yahoo Finance that Google's management is risking an undervaluation by resisting a breakup, leaving the company trading at a low earnings multiple for a growth stock. He suggests that spinning off segments like YouTube, Search, Google Cloud, Waymo, and AI units would unlock shareholder value.
Legal and Market Pressures Mount
US District Judge Amit Mehta ruled last August that Google illegally monopolized general search markets. The judge now faces the challenge of proposing remedies while considering how AI is reshaping search. The Department of Justice (DOJ) has recommended that Google divest Chrome, its ad network, and possibly its Android business.
Luria’s clients, largely institutional investors, favor a comprehensive breakup rather than piecemeal spinoffs suggested by the DOJ. “Everybody knows the best thing for Google is to break it up, except for Google,” he said.
Valuation Breakdown of Google's Business Units
Using earnings data from Alphabet and competitors, Luria estimates that Google’s individual units would command higher valuations trading independently. For example:
- Waymo could be valued similarly to Uber.
- Google Cloud might trade like Snowflake.
- YouTube could be in line with Netflix.
- AI segments such as TPU chips and DeepMind could rival Nvidia.
Luria specifically values the AI chip and DeepMind businesses at around $760 billion combined. Shares could rise to $240–$300 if Google pursued this breakup strategy, compared to trading near $160 currently.
The Decline of Google Search
Luria describes Google Search as “a melting ice cube,” highlighting the challenges in maintaining monopoly power as AI chatbots gain traction. Evidence includes Apple's senior VP Eddy Cue noting a decline in Safari searches, which currently defaults to Google Search. Apple is testing AI-powered alternatives like Perplexity in Safari.
Some suggest Apple's testimony aims to strengthen its $20 billion deal with Google, so the impact on Google’s market share remains debated.
Barriers to Change
A major obstacle to Luria’s breakup idea is Google’s ownership structure. Insiders, including founders Sergey Brin and Larry Page, hold controlling stakes, making activist investor intervention unlikely. Luria believes only the founders have the power to prioritize shareholder value over current management strategies.
Implications for Investors
Alphabet’s stock trades at a forward earnings multiple of 16, below the market average. Luria’s analysis shows individual business units would trade at multiples comparable to their peers, such as 4.6 times revenue for Search and 23 times for AI segments like TPU and DeepMind.
For finance professionals tracking tech giants, this suggests that Alphabet’s current valuation may not fully reflect intrinsic business value. Monitoring regulatory developments and AI’s impact on search will be key in assessing future stock performance.
For those interested in how AI continues to reshape industries and investment strategies, exploring comprehensive AI education can be beneficial. Resources like Complete AI Training offer relevant courses to stay informed about AI’s influence across sectors.
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