The field of technology is buzzing with excitement over reports that Apple (AAPL) is in talks with Google’s parent company, Alphabet (GOOGL), regarding the integration of Google’s generative artificial intelligence (AI) model, Gemini, into its upcoming iPhone model.
Apple’s CEO, Tim Cook, has reassured investors of the company’s intention to launch generative AI capabilities this year, promising groundbreaking features that will push boundaries.
Cook recognizes the necessity for innovation as investors seek new avenues for growth within Apple. In the realm of smartphones, competitors like Samsung and Google have already incorporated Gemini into their latest devices.
Despite ongoing rivalry in the smartphone market, this potential AI collaboration between Apple and Google ought not to surprise observers. It would simply extend one of the tech industry’s enduring alliances. Google, now under the umbrella of Alphabet, has been an integral part of Apple’s success story since the debut of the iPhone in 2007. Initially providing Google Maps for navigation, the partnership later expanded to have Google serve as the default search engine on Apple’s Safari browser.
The Enduring Apple-Google Partnership
This collaboration has proven to be a lucrative venture for Apple, with reports indicating that Google pays Apple over $18 billion annually as part of their agreement.
A deal involving Gemini would be a significant triumph for Google, given Apple’s expansive user base of over 2 billion active devices. Additionally, Apple’s stellar reputation for safeguarding user privacy could further bolster Google in the AI realm as it becomes increasingly intertwined with daily life.
A potential partnership with Apple’s iPhones could swiftly propel Google’s AI usage beyond that of its primary competitor, OpenAI, the creator of ChatGPT and backed by Microsoft (MSFT).
Leveraging the Gemini model on iPhones is projected to be a profitable move for Apple, as it stands to benefit from Google’s current subscription price of $19.99 per month for its Gemini Advanced app.
Why hasn’t Apple developed its AI technology in-house? It appears that Apple’s own AI initiatives, including the Ajax large language model (LLM) and the Apple GPT chatbot, have not reached par with the advancements made by Google and other tech giants. Lacking the extensive server infrastructure required to train effective LLMs for AI, collaborating with a peer such as Google presents a viable alternative.
Apple is preparing to introduce new features based on its AI models within iOS 18, the upcoming iteration of the iPhone’s operating system. However, these enhancements are primarily focused on device-centric features rather than cloud-based services.
Speculations and Expectations
Ongoing discussions between Apple and Google may not yield a concrete agreement until Apple’s annual Worldwide Developers Conference (WWDC) in June. Nevertheless, the possibility remains that the two tech giants may not reach an accord, especially given the scrutiny they face for their existing search partnership.
Should a partnership fail to materialize, Apple could pivot to alternative generative AI providers like OpenAI or even consider a multi-partner AI strategy.
If a collaboration is sealed, it would represent a significant victory for Google. Despite the substantial costs Google might incur to integrate Gemini into iOS devices, the move grants Google a prized asset in AI: scale. By introducing Gemini to the iPhone user base, Google not only expands its potential user pool significantly but also attracts users who are willing to pay a premium for cutting-edge AI functionalities.
Moreover, an expanded user base translates to increased data, enabling Google to enhance Gemini’s performance and overall product value. Notably, Google faced challenges with Gemini in the past, prompting a suspension of its image-generation feature due to historical inaccuracies earlier this year.
Investing in Alphabet Stock
Looking beyond AI, Alphabet boasts a robust business portfolio. Google’s dominance in the online search market, commanding over 90% global share (80% in the US), coupled with strong cash flow generation, underscores its market strength. With Android’s widespread global smartphone market share, Google is well-positioned to maintain its grip on mobile search dominance.
Furthermore, Google’s Chrome browser maintains its market lead with a 65% share, as per StatCounter data. Additionally, YouTube’s extensive viewership surpasses that of other online video platforms, making it an attractive avenue for advertisers.
Forecasts suggest that Google will continue to make strides in the cloud market, with an anticipated annual revenue growth rate of 22% through 2028.
In a landscape where online user numbers and engagement are on the rise, digital ad spending is expected to follow suit, offering Google a prime position to benefit substantially from this trend.
All these factors considered, Alphabet stock holds promise as a compelling investment opportunity below the $155 mark.
