The U.S. Department of Justice filed a milestone antitrust lawsuit against Alphabet Inc.'s (GOOG) Google last week, which could implicate and negatively affect another Silicon Valley giant: Apple Inc. (AAPL). Recent analysis estimates suggest that the lawsuit could in fact prove more damaging for Apple in the immediate term if the agreement between the two companies is jeopardized.

"There is a risk, if you play it out, that there actually could be more financial impact to Apple than there is for Google," Toni Sacconaghi, an analyst for Bernstein, told The Wall Street Journal in an article published on Oct. 26, estimating that Apple stock could decline as much as 20% if the agreement with Google is dissolved.

The landmark lawsuit, which follows a 16-month investigation by the House of Representatives' judiciary committee, is a part of a broader regulatory push against big tech. However, it remains unclear which of the Silicon Valley companies will prove more vulnerable to mounting regulatory pressure.

The lawsuit highlighted the pact between Apple and Google, an increasing collaboration between the two companies to have Google's search engine as the default choice on Apple products, including the iPhone.

Broadly, the lawsuit accuses Google of abusing monopoly power and "unlawfully maintaining monopolies through anticompetitive and exclusionary practices" in search and advertising segments. It specifically mentions Apple in "long-term agreements with Apple that require Google to be the default – and de facto exclusive – general search engine on Apple's popular Safari browser and other Apple search tools."

The lawsuit describes that the relationship's evolution from Google being the default search engine on Apple's Safari browser in 2005 in exchange for ad revenue to a broader agreement that included iPhones and later Apple's assistant Siri. "Today, Google's distribution agreement with Apple gives Google the coveted, preset default position on all significant search access points for Apple computers and mobile devices," the Justice Department stated.

The filing cites Google estimates that 50% of its search traffic comes from Apple devices. For Apple, it's clear that the impact would be significant. Google's payments to Apple are projected at $8 billion to $12 billion per year, which make up about 15% to 20% of Apple's global net income.

Google's argument essentially boils down to "everyone is doing it" and the idea that it's easy to change your browser setting if you want to. "Our agreements with Apple and other device makers and carriers are no different from the agreements that many other companies have traditionally used to distribute software," said Kent Walker, Google's senior vice president of global affairs, in a blog post titled "A deeply flawed lawsuit that would do nothing to help consumers." According to Walker's post, "Apple's iPhone makes it simple to change your settings and use alternative search engines in Safari – and it's even easier in iOS14 where you can add widgets from different providers or swipe on the home screen to search."

The investigation from the House antitrust panel earlier this month found that the issue was more with the mobile operating system and broader ecosystem that the consumers became locked into. "There are significant barriers to switching between the dominant mobile operating systems," they found. 

There are many uncertainties about how this lawsuit will play out, the outcome of the presidential election, the race for the senate, and the overall regulatory and political climate to hold big tech accountable. For Apple investors, there are also many questions about the sales of the iPhone 12 series, the COVID-19 pandemic in different countries, and retail sales there. Any scaled-down version of Apple's strategic relationship with Google or the potential loss of Google revenue would definitely have a negative impact both in the immediate and longer term.

Whatever the outcome of the lawsuit, it's clear that this is just the beginning. Over the months and years to come, there will be more political and public scrutiny of existing big tech firms, how they do business together, and the impact of these practices on consumers.