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Apple (NASDAQ:) stock rose 1.5% Monday on reports that the iPhone maker is to incorporate its Gemini AI model engine into the iPhone.
Stocks of both companies have recently struggled as they lag behind rivals in the AI race, but analysts believe a potential partnership could be a major shake-up in the industry.
Apple and Google (NASDAQ:) in talks over Gemini
On Monday, Bloomberg News reported that Apple is in talks to incorporate Google’s Gemini AI engine into its iPhone products.
The report, citing sources familiar with the matter, states that the talks are focused on licensing the Gemini technology for integration into upcoming iPhone software features slated for release this year. Details regarding the terms, branding, and implementation of the potential AI partnership remain under negotiation.
The possibility of an announcement regarding this deal is anticipated around June, coinciding with Apple’s annual developer conference. Apple has also engaged in preliminary discussions with OpenAI, the maker of ChatGPT, about leveraging its model.
A partnership with Apple could significantly expand the reach of Google’s AI services, potentially extending to over 2 billion active Apple devices. This move would provide a major boost in the search giant’s efforts to catch up with Microsoft-backed OpenAI.
At the same time, an agreement would also offer some reassurance for Apple investors, especially after the iPhone maker’s recent 10% share price decline which resulted in the company losing its status as the world’s most valuable firm.
Google and Apple have maintained a longstanding partnership, with Google serving as the default search engine on Apple’s Safari browser. A deeper collaboration in AI could strengthen Google’s position against emerging threats to its search dominance from AI-driven services like ChatGPT.
However, such a deal could also likely draw increased scrutiny from regulators, who are suing Google for paying billions of dollars to Apple to retain its search monopoly.
Gemini fiasco
Although Gemini has been well-received among both consumers and businesses, the AI model hasn’t been without its issues.
Last month, it was revealed that Gemini occasionally mishandled the depiction of people’s races in AI-generated images, leading to widespread controversy.
Google CEO Sundari Pichai described the issue as “completely unacceptable” and the company temporarily halted its image generation feature.
Sergey Brin, co-founder of Google, admitted that the company’s AI technologies, including Gemini, are still a work in progress.
“We definitely messed up on the image generation and I think it was mostly due to not thorough testing and it definitely, for good reasons, upset a lot of people,” he said.
The controversy erased $90 billion of Google’s market cap in a single trading session last month.
What analysts are saying
Commenting on the latest developments, Lynx Equity Strategies analysts said Apple’s potential partnership with Google would secure “two crucial wins” for the iPhone maker.
Those include eliminating the need to invest in costly GPU-based AI servers and gaining access to Google’s more affordable air-cooled TPU chip technology for AI tasks.
The result of that would be a reduced total cost of ownership (TCO) for Apple.
“In our view, if AAPL is going to leverage GOOG’s cloud investment, AAPL can avoid making the crushing capex investments its hyperscale peers have had to. If so, AAPL’s FCF and stock buyback could remain unchanged, a definite positive for the stock,” said Lynx analysts.
Should Apple decide to license Google’s Gemini AI, as anticipated, this agreement could solidify Google’s TPU chip’s status in the industry. This development might lead investors to reconsider the current dominance of Nvidia (NASDAQ:), whose share of global AI workloads has surpassed 80%.
“If AAPL decides to license Google’s Gemini, and by extension Google’s TPU chip, that goes against investor assumption that GPU solutions from NVDA and AMD (NASDAQ:) are the predominant way to go for AI workloads,” added analysts.
Analysts at Bank of America voiced similarly bullish views on the possible Apple-Google AI collaboration.
They said that a partnership that allows faster incorporation of GenAI features into iPhone and incremental hardware additions “would be a positive for both Apple and for the potential partner if Apple ends up with an agreement.”
“Maintain Buy on Al driven multi-year upgrade cycle and potential for gross margins to re-rate higher,” they wrote.
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