The highly anticipated antitrust ruling has eliminated a key risk that had surrounded Alphabet (GOOGL.US) for months, providing relief for the stock. On September 2nd, U.S. Federal District Judge Amit Mehta ruled that Alphabet does not need to divest its Chrome browser or break up its Android operating system, while continuing to reject prosecutors' related demands. Alphabet was also not prohibited from paying Apple to ensure its search remains the default option on Apple devices, though the court reserved the right to revisit this arrangement in the future. Additionally, Alphabet was not banned from paying distribution partners to pre-install Google Search, Chrome, or its generative AI products. However, Alphabet must share some search index data with competitors to open up competition in the online search market. Meanwhile, the company cannot enter into exclusive distribution contracts involving Google Search, Chrome, Google Assistant, and Gemini applications.

The market widely views this ruling as favorable for Alphabet, as the company avoided the worst-case scenario of having core businesses like Chrome browser and Android operating system broken up. Boosted by this news, Alphabet closed up over 9% on Wednesday. Neville Javeri, senior fund manager at Allspring Global Investments, stated: "This ruling clears the runway for further growth opportunities at Alphabet." He added that the stock presents "incredible opportunities."

This ruling outcome is also expected to allow Alphabet's rally since its second-quarter earnings report to continue. The earnings showed that demand for artificial intelligence (AI) products is boosting the company's sales, with the company's AI products continuing to strengthen investor confidence in its ability to fend off competitors like OpenAI. Since then, Alphabet's stock price has risen more than 20%, making it one of the top-performing third of stocks in the Nasdaq 100 index this year. In previous months, Alphabet's stock had struggled due to antitrust risks and investor concerns that AI might erode its $50 billion search business.

Although debates about AI are unlikely to subside in the short term, Wall Street is increasingly confident that Alphabet can hold its ground. The company's AI features launched earlier this year received widespread praise, and its latest Pixel phones with built-in AI features have also received positive feedback. Mobile phone sales from Alphabet and Samsung Electronics indicate that consumers are willing to switch to devices using Alphabet's Android operating system. TD Cowen analyst John Blackledge stated: "Given the new AI search features and rapidly expanding Gemini applications, we expect Alphabet to maintain its leading position in traditional search."

Alphabet currently has a market capitalization of $2.81 trillion, just about 7% away from $3 trillion. So far, only Apple, Microsoft, and Nvidia have reached this market cap level. Bridging this gap may not be difficult. Alphabet's current forward price-to-earnings ratio is approximately 21 times, while the Nasdaq 100 index is at 26 times. Alphabet's revenue is expected to grow by 14% this year, exceeding the average for Nasdaq 100 constituent companies.

However, technical indicators suggest that despite improving market sentiment, Alphabet stock's momentum may be difficult to sustain in the short term. The stock's 14-day relative strength index has jumped above 83, the highest since 2017, far exceeding the 70 level that technical traders consider overbought. The stock is currently trading at par with analysts' average target price, indicating Wall Street doesn't see much more upside.

Rosenblatt Securities analyst Barton Crockett stated that investors "can feel relieved about the dissipation of short-term risks," but "long-term concerns about competitive risks to the search business will limit valuation multiples." The analyst also reiterated a "neutral" rating on the stock. Liam McGarrity, U.S. investment analyst at Harris Oakmark, said: "Alphabet's stock still looks very attractive because it has numerous high-quality, fast-growing businesses." Harris Oakmark holds Alphabet as its largest position.

For Liam McGarrity, the core of holding Alphabet lies in believing it can continue to stay ahead of AI competitors and maintain growth. He stated: "When you consider that it trades cheaper than the broader market while possessing industry-leading AI technology and significant potential in businesses like Google Cloud and Waymo, you'll find it's trading at a significant discount."