Markets

Why Alphabet Stock Sank Today

What happened

Class A and C shares of Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) have sunk today, down by 5% and 4% as of 12:10 p.m. EDT, respectively, following a report that Apple (NASDAQ: AAPL) is ramping up its development of a competing search engine. CEO Sundar Pichai is also testifying today in front of Congress to discuss Section 230 of the Communications Decency Act.

So what

Google has long paid Apple billions of dollars per year to be the default search engine in iOS, a lucrative deal for both tech juggernauts that has come under scrutiny from antitrust regulators. The Department of Justice formally filed an antitrust complaint against Google just a few days ago, arguing that the arrangement undermines competition. Details around the deal are closely guarded: Apple previously refused to tell Congress how much it gets from Google, but analysts estimate that it could be as much as $12 billion.

Exterior of Google's Googleplex headquarters

Image source: Google.

In part due to intensifying scrutiny from lawmakers and regulators, Apple is now "stepping up efforts to develop its own search technology," according to The Financial Times. The Mac maker confirmed many years ago that it had created a web crawler bot called Applebot to index web pages for Siri and Spotlight.

The report notes that Apple poached Google's former head of search and artificial intelligence (AI), John Giannandrea, in 2018. He now serves as head of machine learning and AI at Apple. Experts have also noticed increased activity from Applebot, according to Financial Times.

Now what

Investors are worried that one of Google's most important business arrangements -- the DOJ estimates that almost half of all Google search traffic comes from Apple gadgets -- could be at risk.

The Senate Commerce Committee is also trying to evaluate if Section 230 "has outlived its usefulness." Section 230 shields tech platforms from liability associated with content posted by users.

"The United States adopted Section 230 early in the internet's history, and it has been foundational to U.S. leadership in the tech sector," Pichai said in his opening remarks. "It protects the freedom to create and share content while supporting the ability of platforms and services of all sizes to responsibly address harmful content."

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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