Could Apple be a casualty of the DOJ suit targeting Google?

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A Wall Street firm argued this week that if Alphabet (GOOGL) were to lose a U.S. government antitrust lawsuit targeting its search operations, browsing partner Apple (AAPL) could take a hit on profits. But a ruling could take years to materialize and shouldn’t change Apple’s status as a rare “own it, don’t trade it” company. The U.S. Department of Justice’s case against Google Search went to trial last month , with the agency alleging Google unfairly used exclusive deals with mobile companies and browser firms to make its search engine the default for consumers. Part of the lawsuit focuses on Google’s lucrative partnership with Apple, whereby Alphabet pays the iPhone maker to host its widely-used search engine as the default on Apple devices. If a court were to rule in the DOJ’s favor and find the arrangement between the two tech giants to be monopolistic, investors would likely take a negative view of Apple — with knock-on effects for the iPhone maker’s bottom line, Bernstein analyst Toni Sacconaghi argued in a research note Monday. The Wall Street analyst estimated that Apple earns between $18 billion to $20 billion a year from Alphabet for making Google the default search engine on Apple products. The payments account for between 14% to 16% of Apple’s overall operating profits, Sacconaghi estimated. Google has repeatedly rejected the DOJ’s claims, arguing its search engine is simply a superior product relative to that of competitors. “Users today have more search options and more ways to access information online than ever before,” John E. Schmidtlein, a lawyer for Alphabet, said when the trial got underway on Sept. 12. That’s a view we share. Google Search didn’t become the dominant search engine because of a tie-in with Apple. It accomplished this by being far and away the best product online. AAPL YTD mountain Apple (AAPL) year-to-date performance When it comes to Apple, we have found that the best strategy for long-term investors like us is to block out the noise. Apple’s partnership with Google doesn’t change our “own it, don’t trade it” thesis on the Big Tech name. Worrying about the deal’s termination, which may or may not happen and could take years to finalize, is a misguided reason to trade out of the best-run company in the world. Additionally, Apple has a market capitalization near $3 trillion, a strong balance sheet, solid fundamentals and diverse revenue streams, all of which would allow the firm to weather the hypothetical termination of payments from it’s partnership with Google. Still, Bernstein’s Sacconaghi argued that if the Apple-Google partnership were ultimately terminated, Apple could launch its own search engine to make up for any losses. “Apple could leverage its brand and its messaging around privacy to capture meaningful share,” Sacconaghi wrote. And as we see it, that would be an interesting development that could create a new and lucrative advertising-related revenue stream for Apple. (Jim Cramer’s Charitable Trust is long AAPL, GOOGL . See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Google CEO Sundar Pichai (L) and Apple CEO Tim Cook (R) listen as U.S. President Joe Biden speaks during a roundtable with American and Indian business leaders in the East Room of the White House in Washington, D.C., on June 23, 2023.

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