Alphabet is embroiled in one of the most serious antitrust cases to threaten Big Tech in decades. In the stock market, where other megacaps have started to buckle, traders seem unconcerned.

Instead of focusing on risks related to the US case, investors are seeing a relatively inexpensive stock with strong revenue growth prospects and the assets to make Alphabet, the parent of Google, an artificial intelligence winner. The shares are showing resilience at a time when soaring interest rates again stoke recession fears, while recently outperforming Amazon.com and Apple.

“If you look at stability of earnings, Alphabet is right near the top of that list,” said Matt Miskin, co-chief investment strategist at John Hancock Investment Management. “It is a major quality stock, and given that it trades a bit cheaper than peers and should be a major player in AI, it is hard to not like the relative value opportunity.”

Shares of Alphabet rose 0.9% on Wednesday. The Nasdaq 100 Index gained 0.6%.

Alphabet shares have soared 51% this year and are less than 4% from a September high, while Amazon and Apple are down more than 12% from recent peaks.

The US justice department’s case targets Alphabet’s search business, which it alleges maintains a monopoly by paying rivals to make its engine the default on web browsers. The US wants Alphabet to change its business practices and potentially pay damages and restructure itself.

Search was the source of fears earlier this year, fanned by the rocky debut of Alphabet’s ChatGPT rival, Bard. But concerns about the Google owner’s dominant position in search have subsided as its market share has barely budged from about 84% since ChatGPT was released in November. Meanwhile, Microsoft’s rival Bing search engine, which has incorporated ChatGPT-powered features, has remained steady at about 9%, according to the latest available data from Statista.

Google higher

Recovering demand for digital advertising is helping to push Alphabet’s revenue and profitability estimates higher. Analyst projections for 2024 profit have risen 7.8% in the past three months, while sales estimates are up 1.9%, according to the average of analyst estimates.

Unlike many of the biggest internet and technology stocks, Alphabet doesn’t come with a nosebleed valuation. Shares trade at less than 20x estimated earnings, a discount to the Nasdaq 100 Index, and below the stock’s average multiple over the past decade. In contrast, Apple and Microsoft are at premiums to the market and their own history.

Read: How a years-long truce between Google and Microsoft fell apart

“Ultimately, Alphabet offers premium earnings growth, a very strong capital return profile, a lot of visibility, a very strong market position, and it is a leader in AI,” said Michael Scanlon, portfolio manager at Manulife Investment Management. “Yet its valuation is in line with the S&P 500. That makes it incredibly attractive, and very compelling here.”

Alphabet has been investing heavily in AI-related projects for years, which has yielded some of the technological breakthroughs underpinning the latest AI wave. The company has also begun to experiment with incorporating generative AI into its search engine.

The antitrust suit is unlikely to impair the business, according to Scanlon. And a worst-case scenario — where the justice department wins and the company is broken up — could end up being a positive catalyst, he said.

“Alphabet trades incredibly well on a sum-of-the-parts basis, and the stock doesn’t reflect the value of all the businesses,” he said. “If it were ever broken up, investors would be very excited to get their hands on individual parts.” — Ryan Vlastelica, with Julia Love, Subrat Patnaik, Tom Contiliano and Rheaa Rao, (c) 2023 Bloomberg LP