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Apple (NASDAQ:) stock rose 1.5% on Monday following reports that the iPhone maker will incorporate its Gemini AI model engine into iPhones.
Both companies' stock prices have struggled recently as they lag behind rivals in the AI race, but analysts say a potential partnership could be a game-changer for the industry.
Apple and Google (NASDAQ:) are 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 people familiar with the matter, said talks are focused on licensing Gemini technology for integration into upcoming iPhone software features scheduled for release this year. The terms, branding, and implementation details of the potential AI partnership are still being negotiated.
It is expected that an announcement about the partnership could come around June, coinciding with Apple's annual developer conference. Apple is also in preliminary discussions with ChatGPT's creator, OpenAI, about leveraging its model.
The partnership with Apple could significantly expand the reach of Google's AI services to more than 2 billion active Apple devices. The move will be a big boost to the search giant's efforts to catch up with Microsoft-backed OpenAI.
At the same time, the agreement will provide some relief to Apple investors, especially after the iPhone maker's stock recently fell 10%, losing its status as the world's most valuable company.
Google and Apple have a long-standing partnership, with Google serving as the default search engine for Apple's Safari browser. Deeper AI collaboration could strengthen Google's position against new threats to its search dominance from AI-driven services like ChatGPT.
But such a deal could also invite increased scrutiny from regulators, who are suing Google for paying Apple billions of dollars to maintain its search monopoly.
Gemini fiasco
Although Gemini has been well received by both consumers and businesses, the AI model has not been without its problems.
Last month, it was revealed that Gemini was occasionally mishandling the depiction of people's races in AI-generated images, leading to widespread controversy.
Google CEO Sundari Pichai called the issue “totally unacceptable,” and the company temporarily disabled image generation.
Google co-founder Sergey Brin acknowledged that the company's AI technology, including Gemini, is still in development.
“We definitely failed in image generation, and I think the main reason for that was that we didn't do thorough testing. It upset people,” he said.
The controversy wiped out $90 billion of Google's market capitalization in a single trading session last month.
Analyst opinion
Commenting on the latest developments, analysts at Lynx Equity Strategies said a potential partnership with Apple and Google would secure “two important wins” for the iPhone maker.
These include eliminating the need to invest in expensive GPU-based AI servers and leveraging Google's more affordable air-cooled TPU chip technology for AI tasks.
The result is a lower total cost of ownership (TCO) for Apple.
“In our view, if AAPL leverages GOOG's cloud investments, we believe AAPL can avoid the significant capital expenditures that its hyperscale peers have had to make. , AAPL's FCF and share buybacks are likely to remain unchanged, which would be a clear positive for the stock price,'' Lynx analysts said.
If, as expected, Apple decides to license Google's Gemini AI, the deal could solidify Google's TPU chips' position in the industry. This move may make investors reconsider the current dominance of his Nvidia (NASDAQ:), which has over 80% share of global AI workloads.
“If AAPL decides to license Google's Gemini, and by extension, Google's TPU chips, it would contradict investors' assumptions that NVDA and AMD (NASDAQ:) GPU solutions dominate AI workloads.” added the analyst.
Analysts at Bank of America expressed similarly bullish views on the potential for AI collaboration between Apple and Google.
They said the partnership, which allows for faster integration of GenAI capabilities into iPhones and the addition of additional hardware, “would be a positive for both Apple and potential partners if an agreement is ultimately reached.” Stated.
“We maintain an Al-driven multi-year upgrade cycle and the potential for gross margins to be reassessed,” they wrote.
