Google Wins Antitrust Battle, Tech Rally Surges on AI Optimism

Good Morning Investors

After Tuesday's selloff tested investor nerves amid tariff uncertainty and spiking bond yields, tech is staging a recovery midweek as Alphabet leads a rally in large caps following a pivotal antitrust ruling. Google was spared the nuclear option of a breakup that the DOJ originally proposed, and while it will have to open its search data to rivals and ditch exclusivity deals, the outcome landed far short of Wall Street's worst-case scenario. Shares are up 6% in early trading, and with Apple also gaining 4% on the relief, the mega-cap tech trade just got a new lease of life.

This is particularly satisfying as Google has been my top large-cap pick all year. The company's dominance in AI infrastructure and monetizable user data is only just beginning to show up in results, and this legal outcome removes a major regulatory overhang just as the company enters its AI monetization ramp. The ruling doesn't end the regulatory saga, but it's a win that strengthens the bull case for Alphabet heading into Q4.

S&P 500 ($SPY ( ▲ 0.14% )) futures are up 0.5%, Nasdaq ($QQQ ( ▲ 0.03% )) futures ahead 0.7%, while Dow ($DIA ( ▲ 0.12% )) futures hover flat as tech outperformance meets lingering rate tension. Alphabet is leading the charge, and Apple is close behind. Bond yields remain elevated but stable, with the 30-year yield still flirting with the critical 5% technical level after Tuesday's spike on tariff refund risk and growing Fed independence concerns. The Lisa Cook situation continues to rattle markets as nearly 600 economists warn that political interference threatens the Fed's credibility.

September historically ranks as the worst month for stocks, and we're seeing that seasonal weakness play out. With manufacturing showing six consecutive months of contraction and labor market cracks appearing, investors are bracing for today's JOLTS job openings data at 10 AM ET and watching Treasury action closely ahead of Friday's crucial jobs report.

Gold continues to catch a bid on haven flows and growing Fed cut expectations, while oil edges lower ahead of this weekend's OPEC+ meeting. European equities are green, and Japan closed weaker as the Bank of Japan pushed back on early rate hike speculation.

Tuesday's ruling spared Google ($GOOGL ( ▲ 0.32% )) a forced Chrome or Android divestiture, instead targeting anti-competitive behavior in search contracts and ordering data sharing with competitors. Importantly, the company can still make payments for preloading and placement, just not on an exclusive basis.

The court's decision avoids regulatory overreach while establishing clear boundaries around default search contracts, syndication practices, and GenAI tactics. Judge Mehta recognized that breaking up successful companies would harm consumers and took a measured response that markets embraced.

The key takeaway: Alphabet remains intact, profitable, and a dominant AI player. This win removes uncertainty and gives it more room to run as AI revenue acceleration becomes visible in coming quarters.

Beyond large-cap tech, there are compelling setups forming in other growth names. Coinbase ($COIN ( ▲ 1.04% )) is once again hovering around the $300 level, a zone that has acted as reliable support across several key pullbacks this year. With Bitcoin stabilizing around $63,000 and crypto sentiment improving ahead of what's historically a strong Q4 season, the technical and fundamental setup looks constructive.

The company has delivered impressive growth in average revenue per user, up nearly 57% over two years, showing that customer engagement isn't just sticky, it's becoming more valuable over time. At the same time, earnings per share momentum has accelerated, now running close to 100% annualized over the past two years. It's a meaningful signal that operational leverage is starting to show through.

Perhaps most importantly, free cash flow margins have remained strong, averaging over 25% across the same period. In a sector that still battles periodic sentiment shocks and regulatory overhangs, Coinbase has quietly become one of the most profitable platforms in the space.

With potential crypto ETF flows building and regulatory clarity improving, the setup for Coinbase into year end is appealing. If digital asset sentiment shifts, this could be one of the better positioned large-cap names to rerate quickly. The risk reward here looks compelling, especially at current support levels.

Macy's beat on both earnings and revenue, lifted guidance, and is now up 10% pre-market. The retailer is managing tariff impacts effectively and has found operational tailwinds in denim, watches, and womenswear.

Zscaler raised guidance and surged after hours. The company is expanding its AI focused security portfolio and proving it can grow at scale in a crowded cybersecurity field.

Disney will pay $10 million to settle an FTC complaint over kids' data privacy violations on YouTube. Regulatory cost of doing business, no material impact expected.

Meta faces pressure in Singapore to curb impersonation scams under the country's new Online Criminal Harms Act. First major enforcement test of these regulations.

Frontier Airlines is rolling out aggressive loyalty perks to poach elite customers from larger carriers. Bold move during a competitive travel cycle.

10:00 AM ET: JOLTS Job Openings (expected: 7.377M vs 7.437M prior) - Key labor market health check before Friday's jobs report

10:00 AM ET: Factory Orders July (expected: -1.4% vs -4.8% prior)

Fed Beige Book release later today - Watch for regional commentary on tariff impacts, hiring conditions, and economic uncertainty

Earnings on Deck: Salesforce, Figma, Macy's, Dollar Tree, Campbell's, C3.ai, American Eagle, HPE

Markets remain volatile, but leadership is broadening beyond the Magnificent Seven. Today's big story is regulatory risk rolling off Alphabet, which supports the broader large-cap tech trade heading into Q4. However, bond yields remain a wild card with the 30-year approaching 5%, a level that historically pressures equity valuations.

I continue to favor equal-weight exposure over tech heavy benchmarks given current macro crosscurrents. Small and mid-caps look compelling as a rate cut cycle takes shape, and I'm warming to international equities with dollar weakness emerging. The Fed independence issue adds another layer of uncertainty, but the underlying earnings trend remains intact.

It's a messy macro environment, but opportunities are forming for investors who can handle near term volatility and focus on quality businesses at reasonable valuations.

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Dan Sheehan

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This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.