Investing.com -- A full-scale breakup of Alphabet is the only way to unlock the tech giant’s true value, according to a new research note from DA Davidson.
While maintaining a Neutral rating on the stock, the firm argues that Alphabet’s (NASDAQ:GOOGL) conglomerate structure is suppressing the market potential of its high-growth businesses.
“We believe the only way forward for Alphabet is a complete breakup that would allow investors to own the business they actually want — the top competitors to NFLX, AWS/Azure, TTD and UBER/TSLA,” analysts wrote.
DA Davidson says piecemeal divestitures won’t satisfy shareholders or regulators.
“Investors want a big-bang breakup, not isolated spin-offs,” the firm said, warning that passive, DOJ-driven moves—such as a possible spinoff of Chrome or Network—would be too little, too late.
The analysts are especially critical of Alphabet’s failure to capitalize on its pioneering AI innovations. “Google allowed the value of AI innovation invented in its labs to be captured by NVIDIA (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT) and OpenAI while it trades at 16x earnings,” they wrote, comparing Alphabet’s missed opportunity to Xerox’s failure to profit from its PC inventions in the 1980s.
As long as Alphabet keeps its businesses under one roof, the stock will trade at a discount, according to DA Davidson.
“By keeping the conglomerate structure, management is dooming all of its businesses to the 16x Search multiple,” the note said, arguing that YouTube, Cloud, and other units are being unfairly valued.
DA Davidson estimates the pieces of Alphabet could be worth $243 per share if broken up today, or closer to $300 if the TPU business sold products outside the Alphabet ecosystem.
“Only founders Sergei Brin and Larry Page can save shareholders,” the firm concluded, calling for bold action to address regulatory threats and unlock long-term value.