Alphabet (GOOG 2.46%) (GOOGL 2.42%) looked like an artificial intelligence (AI) laggard just a few years ago compared to its new rival OpenAI and its popular ChatGPT bot. But oh, how times have changed. With Alphabet and Apple (AAPL 3.68%) recently announcing that Google Gemini will be the foundational AI model for the next iteration of Siri, Alphabet could be closing in on AI chatbot dominance.
While no specific financial details have been released, some reports have said the collaboration could be worth billions of dollars for Alphabet. What's more, it could propel Alphabet to the top of artificial intelligence pack.
Image source: Getty Images.
Apple's problem is Alphabet's gain
To grasp how important all of this is, we first need to understand how far Apple has fallen behind its peers recently. I've said before that Alphabet was caught flatfooted when ChatGPT was released, and, if that's true, Apple was in a full-blown nap.
Siri was already a glaring disappointment for years, and when ChatGPT launched it made Siri look like an antique. It caused Apple to finally snap out of its slumber, but the problem was that its own AI models apparently haven't proved sufficient. The company touted its own Apple Intelligence features for the iPhone but then delayed them, much to users' and investors' disappointment.
Apple's AI fix, up until now, has been to partner with OpenAI to offload users' queries to ChatGPT when Siri can't handle them. But, according to some reporting, OpenAI didn't want to remain Apple's main AI collaborator as it pursues its own devices.
The result is that iPhone users will get a "more personalized" Siri later this year, with Google Gemini as the underlying AI model.
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Why the new collaboration could make Alphabet the AI leader
Google Gemini is already gaining a lot of artificial intelligence ground. The chatbot has more than 650 million monthly users right now, up from 450 million about six months ago. The company's AI models are also powering Google Search, which Alphabet says has 2 billion monthly queries via its AI Mode.
Gemini is already available on hundreds of Android phone models and will be available to even more as new models launch in the coming years. Android has a worldwide installed base of billions of devices, so there's a lot of opportunity for more people to start using Gemini as their primary AI agent.
But Apple's iOS user base is also large, with more than 1 billion devices worldwide. The combination of Gemini soon becoming the underlying AI model for Android and iOS devices will make it much easier for the company to potentially encroach on ChatGPT's current dominance.
OpenAI's chatbot has about 900 million weekly active users, so there's certainly a lot of ground to make up. But if mobile users from both tech giants have Gemini as their default AI model on their devices, there may be little need to use another AI chatbot.
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What Alphabet investors should look for
This new Apple-Alphabet collaboration is still fresh, so it'll be interesting to see how it plays out for both companies. For Alphabet, especially, investors should keep an eye on how this could potentially boost Gemini subscriptions and cloud computing revenue.
The joint announcements from the companies say that Apple's foundation AI models will be based on Gemini and use Google's cloud technology. The Financial Times reports that the collaboration between the two companies is structured as a cloud computing agreement, with the potential for Alphabet to receive billions of dollars over several years. That could potentially help lift Alphabet's cloud revenue, which was already up an impressive 34% in the third quarter to more than $15 billion.
What is clear now, though, is that Gemini is quickly becoming a leader in AI. After a couple of short years of artificial intelligence looking like a threat to Alphabet, it now looks like one of the company's core strengths.
