Alphabet (GOOGL) could beat regulators to the punch by breaking itself up, wrote Needham's Laura Martin in a note on Friday.
Earlier this week, the DOJ announced an investigation against "dominant online platforms," confirming reports of a sweeping antitrust probe targeting Alphabet, Apple (AAPL) , Facebook (FB) and Amazon (AMZN) . On its earnings call on Thursday, Alphabet CEO Sundar Pichai didn't directly acknowledge the investigation, but vowed to "productively" address any concerns from regulators as they arise.
For investors, a breakup of Alphabet isn't necessarily something to dread, Martin has argued in recent research.
On Friday, Martin estimated that YouTube -- one of Alphabet's most important sources of revenue growth -- is worth $200 billion on a standalone basis, roughly 30% above its value within the Alphabet conglomerate.
Investors will also pay more for pure-play businesses for several reasons, she wrote. Those include greater ability to balance risk in pure-play businesses, greater accountability by leadership and for employees, and more granularity for each subset of the business, among other factors.
If Alphabet were to break itself up into two or three parts valued at around $200 billion to $300 billion apiece, it could successfully stave off regulatory threats, she wrote.
"We believe regulatory scrutiny of GOOGL cannot be good. Therefore, we recommend GOOGL break itself up into 2-3 parts, which we believe would be valued in total at a 50% premium compared to its current conglomerate status," Martin wrote.
In an earlier piece of research, Martin forecast that an antitrust probe of Alphabet could take three years to resolve, and add costs and margin pressures for the company for two to four years.