The Motley Fool·2025-05-14 10:00Core Viewpoint - Apple relies heavily on a lucrative payment from Alphabet to maintain its profitability, which poses a significant risk if this revenue source is jeopardized [1][2][3][5]. Revenue Dependency - Alphabet paid Apple approximately $20 billion in 2022 to ensure its search engine is the default on iPhones, a payment that is crucial for Apple's bottom line [2][5]. - This payment is considered pure profit for Apple, as it incurs no associated costs, making it a vital component of its financial health [3][7]. Potential Impact of Revenue Loss - If Apple were to lose the $20 billion payment, its net income could drop by around 20%, which would likely lead to a significant decline in stock price, potentially being labeled a "crash" by investors [9]. - Over the past three years, Apple's trailing 12-month net income has been around or slightly below $100 billion, indicating the substantial impact of losing this revenue stream [7]. Market Valuation Concerns - Apple's stock is currently valued at a premium, trading at 31 times trailing earnings and 28 times forward earnings, compared to the S&P 500's 22.8 times trailing and 21.2 times forward earnings [10][12]. - The company's expected revenue growth is modest, projected at 4.1% for fiscal year 2025 and 6.1% for fiscal year 2026, raising concerns about its ability to sustain its premium valuation [12]. Competitive Landscape - The ongoing legal challenges regarding Google's search engine monopoly could affect the future of the payment arrangement between Apple and Alphabet, with potential shifts towards AI-powered search diminishing the need for such payments [6][9]. - Investors are advised to consider other tech companies that may not face similar challenges and do not carry the same premium valuation as Apple [13].