Alphabet's Value Could Skyrocket To $3.7 Trillion With Google's 'Big Bang Breakup' Over 'Isolated Spin-Offs,' Predicts Analyst - Alphabet (NASDAQ:GOOG), Apple (NASDAQ:AAPL)

DA Davidson analyst Gil Luria has proposed that Alphabet Inc. GOOGL GOOG should contemplate splitting up Google’s various businesses to enhance its overall value. This recommendation comes amid Google’s struggle to retain its supremacy in the search engine market due to the rise of AI chatbots.

What Happened: Luria, in an interview with Yahoo Finance, has expressed that Google’s resistance to a breakup is contributing to its unusually low earnings multiple for a growth company. The U.S. Department of Justice has previously called on Google to divest its Chrome browser and advertising network and potentially its mobile Android division as well.

Luria’s clients, a broad spectrum of institutional investors, are pushing for a “big bang breakup” rather than “isolated spinoffs”. Luria suggests that Google should divide its businesses into individually traded entities.

According to Luria’s analysis, Google’s individual businesses would be valued much higher as separate entities. While Google’s market capitalization is currently less than $2 trillion, Luria estimates that the total value of Google’s businesses, when valued separately, would be $3.7 trillion.

The analyst proposes that Google should separate YouTube, Search, Google Cloud, Waymo and its AI segments. He contends that Alphabet’s stock is currently trading at a historically low valuation—just 16 times its forward earnings—significantly below the overall market multiple.

Luria also stated that Google’s individual businesses would trade at levels comparable to their peers, with Waymo comparable to Uber UBER, Google Cloud to Snowflake SNOW, YouTube to Netflix NFLX and Google's TPU business to Nvidia NVDA.

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Why It Matters: Google’s current predicament can be traced back to May 8, when it experienced one of its worst trading days since 2023, losing over 7% and nearly $150 billion in market cap. This massive loss was triggered by a statement from Apple Inc.‘s AAPL Eddy Cue, who revealed a decline in search volume on iPhones, an event that hadn’t occurred in 20 years.

This revelation sparked a debate on the All-In Podcast, where venture capitalist Chamath Palihapitiya urged Google to stop waiting for data and start fighting models like ChatGPT.

Luria’s “big bang breakup” is seen as a strategic suggestion for Google to regain its lost ground and boost its overall value in the face of these challenges.

Benzinga's Edge Rankings place Alphabet in the 81st percentile for quality and the 67th percentile for growth, reflecting its strong performance in both areas. Check the detailed report here.

Over the past 5 days, Alphabet stock declined 3.07%, while year to date it plunged 15.6%.