Here’s how Alphabet could be worth $3,100 a share

Alphabet Inc. faces increasing antitrust scrutiny, and while a forced breakup of the company may not be imminent, it wouldn’t be a doomsday scenario either, according to a Bernstein analyst.

In fact, Google-parent Alphabet stands to be worth more broken up, based on Bernstein analyst Mark Shmulik’s sum-of-the-parts valuation. His base-case sum-of-the-parts calculation values Alphabet at $2,600 a share, about 23% above current levels, while his bull case, “without stretching estimates,” suggests the company could be worth $3,100 a share.

“While we can debate the merits and probabilities of breaking up big tech, we believe the nuclear scenario is arguably value-accretive for Google,” he wrote. “And therein lies the relative cushion for owning Google amidst growing scrutiny of big tech.”

Read: In Google antitrust effort, authorities may have saved the best for last

Alphabet’s search business represents the majority of the company’s value in Shmulik’s sum-of-the-parts valuation—at $1,499 a share in the base case and $1,651 a share in the bull case. But he also sees potential in “under-monetized assets in YouTube and Maps, a market-leading app store globally, and a share-gaining Cloud franchise.” The opportunities in these businesses “highlight that there’s a lot to love about this business, together or apart.”

The base-case math ascribes a per-share valuation of $1,499 for search, $61 for Alphabet’s network business, $382 for the company’s YouTube business, $335 for the Google Cloud business, $140 for the hardware and play business, and $75 for the “other bets” businesses, while subtracting $85 a share in unallocated expenses and adding $190 a share in cash-less-debt.

See also: Big Tech CEOs pounded over social media’s role in promoting misinformation, extremism

For his bull case, he calculates a per-share value of $1,651 for search, $76 for network, $496 for YouTube, $472 for Google Cloud, $173 for hardware and play, and $113 for other bets. In this model, he also subtracts $85 a share for unallocated expenses and adds $150 a share for cash-less-debt.

Shmulik also has a $1,700-a-share, bear-case scenario based on this methodology, and this model, among other things, ascribes negative value to the “other bets” collection of businesses, which includes self-driving unit Waymo and other earlier-stage ventures. Still, he says, “it’s hard to believe that we won’t see Waymo command some value in the open market given [driverless-car company] Cruise recently raised at a ~$30 billion valuation.”

While Shmulik said that he and his team “don’t expect a regulator-forced divestment anytime soon,” there’s a chance that Alphabet might consider an “opportunity to alleviate pressure” if it saw one. “If there was anywhere that we could point to on spinning/selling an asset, the Network business is where we’d look,” he wrote. This part of the business, which includes advertising exposure like Google AdSense and the DoubleClick Ad Exchange, face some business risk as cookies become less dominant.

Shmulik has a $2,500 price target on Alphabet shares and an outperform rating. The stock has risen 20% over the past three months as the S&P 500 has gained 6.7%.

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