‘Buy the Dip’ Opportunity as Google Faces Multi-Billion Dollar Lawsuit?

In the aftermath of a 2.1-billion-euro ($2.3 billion) lawsuit filed by 32 media groups, including $Axel Springer AG(AXELF)$ and $Schibsted ASA(SBBTF)$, $Alphabet(GOOG)$ finds itself navigating stormy seas. The lawsuit alleges losses incurred by media companies due to Google's practices in digital advertising, causing $Alphabet(GOOGL)$'s shares to dip over 2%.

The media groups, spanning various European countries, assert that Google's actions have led to a less competitive market, resulting in financial losses for publishers. The lawsuit draws on precedents such as the French competition authority's 220-million-euro fine against Google in 2021 and the European Commission's charges last year.

D.A. Davidson & Co analyst Gil Luria suggests that if regulatory scrutiny intensifies, Google may need to adjust its practices, potentially impacting its advertising business. This legal challenge comes at a critical juncture for Google, with its core advertising business facing a significant shift toward generative AI chat.

In response to the lawsuit, Google maintains its opposition, labeling it "speculative and opportunistic." The tech giant asserts that it collaborates constructively with publishers across Europe, adapting and evolving its advertising tools in partnership with them.

GOOG Daily Chart

Despite the legal headwinds, some market observers, including the analyst Luria, perceive the lawsuit as lacking concrete evidence and primarily based on speculation. Google's stock price is currently hovering around a support zone of $136-$141.

Expressing a bullish sentiment, the opinion shared is that the lawsuit's strength appears weak, marked by a scarcity of evidence showcasing Google's abuse of dominance. The focus on Google Search's optimization for specific articles, rather than tangible proof, raises questions about the lawsuit's viability.

Amidst the legal turbulence and market fluctuations, the argument leans towards a potential long-term opportunity. The support zone at $136-$141 is viewed as an attractive entry point, suggesting that adding Google shares to a long-term portfolio could be a strategic move. Drawing parallels with Meta's experience in 2022, the perspective is optimistic about Google's resilience and its position as one of the world's premier businesses.

While the recent selloff and legal challenges pose challenges, the underlying narrative emphasizes Google's stature as a cash-generating powerhouse. With a track record of consistent growth, the viewpoint is to view the current market conditions as standard fluctuations rather than a significant downturn akin to the "2022 Meta moment." As of now, Google's stock is up over 50% in the last year, and a 10% monthly fluctuation is seen as a minor friction in the broader trajectory.

The conclusion: a potential opportunity to ride out the storm and add a tech giant to the portfolio.

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Disclaimer: This analysis is for informational purposes only and should not be considered financial advice. Always conduct your research before making investment decisions.

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