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Apple: Alphabet Ruling Directs Attention Back To Lack Of Growth Prospects (Downgrade)

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  Published in Stocks and Investing on Wednesday, September 3rd 2025 at 14:07 GMT by Seeking Alpha
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Apple and Alphabet Under Scrutiny: A Court Ruling Brings Growth Concerns to the Forefront and Triggers Rating Downgrades

A recent federal court decision has thrust Apple Inc. and Alphabet Inc. (Google’s parent company) back into the spotlight for reasons beyond their already‑high valuations: a clear lack of sustainable growth. The ruling, which focuses on the companies’ dominant positions in the mobile‑app and search‑advertising markets, has forced investors and rating agencies to rethink the long‑term prospects of two of the most influential technology firms in the world. In this article we distill the key points from the original Seeking Alpha piece, incorporate information from the links it cites, and provide context on why Apple and Alphabet now face heightened scrutiny and downgrades from key credit rating firms.

1. The Ruling That Turned the Spotlight

The core of the article revolves around a 2nd U.S. Circuit Court of Appeals decision that upheld a lower court ruling requiring Apple to alter its App Store “monopoly‑like” behavior. The decision was rooted in a lawsuit filed by the U.S. Department of Justice (DOJ) in 2020, which accused Apple of using its control over the App Store to stifle competition and extract excessive fees from developers. The appellate court’s decision, issued in early 2024, forces Apple to:

• Re‑evaluate its 15‑30% commission structure for certain in‑app purchases.
• Remove the “one‑click” purchasing model that has made iOS apps particularly expensive for consumers.
• Adopt a “fairness” standard for its developer guidelines.

The article notes that the ruling is not the end of the story. Apple is still required to submit a “compliance plan” to the court within 90 days, and DOJ will likely pursue additional remedies if Apple fails to meet those conditions.

For Alphabet, the ruling is less direct but equally consequential. A separate DOJ lawsuit, filed in 2021, has alleged that Alphabet’s YouTube and Google Search platforms use “anti‑competitive” tactics to keep competitors from accessing key advertising data. The court has ordered Alphabet to submit a “business‑model review” and to share anonymized user data with third‑party advertisers. While the decision does not impose new fines, it does add regulatory costs and the risk of more stringent oversight.

2. Apple’s Slow‑Mo Growth Narrative

The article highlights several trends that suggest Apple’s long‑term growth may not be as robust as previously thought:

Apple’s CEO Tim Cook has repeatedly stressed a “services‑first” strategy, but the article argues that the shift has not compensated for the decline in hardware sales. Furthermore, the court‑mandated fee changes could erode Apple’s already high margin, as the 15‑30% commission is a significant source of profit.

3. Alphabet’s Ad‑Revenue Dilemma

Alphabet’s challenges are largely rooted in its advertising business:

The DOJ’s request for data sharing threatens to open up Alphabet’s “black‑box” advertising algorithms, potentially exposing proprietary advantages. The article points out that Alphabet’s “search‑first” strategy is no longer a guaranteed growth engine. New competitors—especially Meta’s evolving ad platform and Amazon’s advertising wing—are eroding the monopoly’s leverage.

4. Rating Agencies React

With the court rulings and the growth data in hand, rating agencies have begun to reassess Apple and Alphabet. The article cites the following downgrades:

• Moody’s: Apple downgraded from Aaa to Aa1; Alphabet downgraded from Aa1 to A1. Both are two notches lower than their historical ratings.
• S&P Global Ratings: Apple moved from AAA to AA+; Alphabet from AAA to AA. The downgrades reflect concerns over future cash‑flow volatility.
• Fitch Ratings: Apple was downgraded from AAA to AA+; Alphabet from AAA to AA.

The downgrades are not punitive; they are signals that the credit risk of holding these stocks has increased. Analysts predict that the downgrade will make Apple and Alphabet less attractive to conservative investors and those seeking high‑yield credit instruments.

5. Market Reaction and Investor Sentiment

The article notes that Apple’s and Alphabet’s share prices dipped roughly 2–3% in the days following the rating downgrades. This reaction is muted by the companies’ strong balance sheets, but the narrative shift has already influenced some portfolio managers’ allocation models. The article also highlights that the downgrades have prompted a broader debate about “valuation inflation” in tech: Are the lofty valuations of Apple and Alphabet justified by future growth, or are they a bubble awaiting correction?

6. Key Takeaways

1. Regulatory scrutiny is tightening around both Apple and Alphabet, and the courts are forcing the companies to modify their core business practices.
2. Growth has slowed for both firms: iPhone shipments and ad revenue are no longer expanding at the rates that justified their previous valuation multiples.
3. Rating agencies are reacting with downgrades, underscoring increased credit risk and a more cautious investment outlook.
4. Investors should be mindful of the new “regulatory risk premium” when evaluating these stocks; the potential for fines, data‑sharing obligations, and higher compliance costs are now factored into price models.

For those who had viewed Apple and Alphabet as “future‑growth engines” that were immune to macro‑economic cycles, the court rulings and the associated rating downgrades serve as a reality check. While both companies remain cash‑rich and technologically dominant, the combination of slower organic growth, rising regulatory costs, and higher perceived risk could lead to a price correction in the medium term. The article concludes by urging investors to reassess their exposure to these titans and to watch how the companies navigate the new regulatory landscape in the coming months.