Apple (AAPL -0.35%) and Alphabet's (GOOG 9.96%) (GOOGL 10.22%) Google are textbook examples of "frenemies." The two tech giants compete against each other in the smartphone market with Apple's iPhones going head to head with Google's Android phones. However, Apple and Google also work together with iPhones using Google Search as their default search engine.
Now it looks like the two companies might be teaming up again, this time on generative AI. Here's why both "Magnificent Seven" stocks would likely win from a deal.
Using Google Gemini on Apple iPhones?
Bloomberg reported on Monday that Apple was in discussions with Google to use its Gemini large language model (LLM) in upcoming iPhones. Google unveiled Gemini in December 2023, calling the LLM "our largest most capable AI model" yet. Gemini comes in three sizes: Ultra (the most powerful version used in Google's subscription plans), Pro (which powers the free version), and Nano (used on mobile devices).
Neither Apple nor Google have commented publicly on the news that they're in talks. Bloomberg cited "people familiar with the situation" as the source for its scoop.
The timing of Bloomberg's report is interesting. The article about a potential collaboration comes on the heels of Apple's release of a report last week describing its work on developing MM1, a family of multimodal LLMs designed to use up to 30 billion parameters.
Apple didn't trumpet its research on MM1, however. The company quietly published its report on Arxiv, a website for preprints and post-prints of research papers. Also, Apple hasn't made MM1 available for testing by outside parties.
Wins for both Apple and Google
Alphabet stock jumped more than 6% in early trading on Monday after the Bloomberg story broke. That's not surprising. Should Apple license Gemini, it would be a major boost for Google's AI credentials.
More importantly, any deal would almost certainly make Alphabet a lot of money. Deepwater Asset Management co-founder Gene Munster posted on X (the social media platform formerly known as Twitter) that licensing Gemini to Apple could add between 1% and 2% to Alphabet's total revenue.
The consensus Wall Street estimate is for Alphabet to generate revenue of $342 billion this year. Using the high end of Munster's range, a licensing agreement with Apple could boost Alphabet's revenue by more than $6.8 billion. The overall financial impact for Alphabet could be even greater if the company leveraged the public relations value of an Apple deal to attract clients to build their AI apps on Google Cloud using Gemini.
Apple investors also liked the idea of using Gemini in iPhones. Shares of the world's second-largest company rose more than 2% in early trading on Monday.
While Google and others have made big splashes in generative AI, Apple has appeared to be left behind. Incorporating Gemini into the iOS operating system used to power iPhones and iPads could enable the company to roll out generative AI functionality more quickly than waiting for its own LLMs to be ready.
Don't celebrate just yet
Investors shouldn't begin celebrating just yet, though. Bloomberg stated that Apple and Google "haven't decided the terms or branding of an AI agreement or finalized how it would be implemented." As anyone following the technology industry knows, the devil is in the details of major licensing deals such as the one that's reportedly being negotiated.
Also, Bloomberg revealed that Apple has talked with OpenAI about using its GPT-4 AI model in iPhones. It seems possible that OpenAI could be a backup plan if Apple's discussions with Google break down. Apple could also use the threat of potentially using GPT-4 as a negotiating tool in obtaining a lower price from Google.
Still, the mere fact that Apple and Google are reportedly in active discussions about a generative AI deal is big for both companies. These two frenemies just might soon move the needle more to the friends side than the enemies side.
