Alphabet (GOOG, Financial) is making strides towards recovering from a post-Q4 sell-off, sparked by news of potential collaboration with Apple (AAPL, Financial). The companies are discussing the integration of GOOG's Gemini AI, previously known as Bard, into over 1 billion iPhones worldwide. This partnership could significantly expand the reach of Google's AI chatbot and prove to be highly profitable for Apple, which already benefits from a lucrative deal making Google the default search engine on mobile Safari.
The integration of AI chatbots like Microsoft's (MSFT, Financial) Bing with ChatGPT is revolutionizing online search. These AI assistants allow users to bypass traditional search methods, posing a threat to Google's dominance in the search engine market. Microsoft's introduction of the Copilot AI feature, which facilitates direct answers without the need for a web browser, further challenges Google's position by offering an alternative to Google search and Chrome.
For Apple, adopting Gemini AI could be a strategic move to rejuvenate its product lineup. Apple's recent avoidance of Generative AI advancements, coupled with declining sales in China, has led to a -10% drop in its stock since mid-December. Competitors like Google and Samsung (SSNLF, Financial) have been quick to incorporate AI features into their devices, making the iPhone appear outdated in comparison.
Google's payments to Apple for maintaining its default search engine status on iPhones have attracted regulatory scrutiny. Both the U.S. Department of Justice and the EU have investigated these agreements. The introduction of Gemini AI might offer temporary relief from these regulatory challenges, though it remains to be seen how authorities will respond to a potential AI monopoly.
The market is optimistic about the potential Google-Apple AI partnership, viewing it as beneficial for both companies. It addresses Apple's strategy for AI leadership and Google's efforts to sustain its search engine supremacy. However, this does not eliminate Microsoft's chance to surpass Google in Generative AI or solve Apple's challenges in the Chinese market.
