A new note from DA Davidson argues that only a full-scale breakup of Alphabet (NASDAQ:GOOGL) can resolve its valuation discount—transforming the conglomerate into pure-play leaders in search, video, cloud, AI, and hardware.
Why Piecemeal Spin-Offs Fall Short
Conglomerate Discount: Trading at roughly 16× forward earnings, Alphabet’s diverse units—YouTube, Cloud, AI, hardware—are all lumped into a single multiple tied to Search’s mature margins.
Regulatory Pressure: DOJ-mandated divestitures of Chrome or ad tech would be “too little, too late,” says DA Davidson, failing to unlock real standalone value.
Missed AI Profits: Google’s lab-born AI innovations have largely enriched NVIDIA, Microsoft, and OpenAI instead of Alphabet’s bottom line.
The Case for a “Big-Bang” Breakup
DA Davidson envisions separate public companies for:
Search & Ads (the 16×-multiple core)
YouTube Streaming (a direct Netflix competitor)
Cloud & AI Infrastructure (challenging AWS/Azure)
Hardware & Edge AI (TPU and devices)
Mobility & Urban Tech (Waymo, Waze vs. Uber/Tesla)
By isolating high-growth, high-multiple businesses, each unit could trade at more appropriate sector multiples, boosting overall market capitalization.
Potential Valuation Uplift
DA Davidson pegs a sum-of-the-parts valuation at $243 per GOOGL share today—rising toward $300 if the hardware (TPU) division captures third-party sales. To model your own breakup scenarios and test different growth and margin assumptions, leverage the Advanced DCF API, which lets you forecast free cash flows, discount rates, and terminal values for each proposed spin-off.
What Investors Should Watch
Founders’ Move: Only Sergei Brin and Larry Page can initiate such a dramatic split—any public signal from them would be a powerful catalyst.
Regulatory Signals: Watch DOJ filings or FTC chatter for hints of antitrust action that might force a breakup.
Segment Reporting: Upcoming earnings may begin to break out standalone performance metrics for Cloud, YouTube, and Waymo—key to assessing each unit’s independent prospects.
By quantifying the value of each business vertical—and tracking any regulatory developments—investors can determine whether Alphabet’s management will finally pull the trigger on the “big-bang” breakup needed to realize its true worth.
