Apple, Alphabet, and a potential AI partnership

Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), the holding company for Google and YouTube, among other properties, was one of the biggest movers on Monday, fueled by reports of a potential partnership with another Magnificent Seven company.

According to Bloomberg, Alphabet is said to be in talks with Apple (NASDAQ:AAPL) to have its Gemini artificial-intelligence technology built into the next version of the iPhone — and perhaps future models.

The news sent Alphabet’s stock higher on Monday, as the shares popped some 7% to about $151 per share. Apple was also up, rising about 2.4% to roughly $177 per share.

New Apple update to feature AI improvements

Bloomberg said the two companies are in “active negotiations” on a partnership that would allow Gemini to power some features for the new iOS 18 update coming later this year, likely at Apple’s Worldwide Developers Conference in June.

Of course, this is based on reporting citing people familiar with the matter and should not be taken as fact, but rather, unconfirmed speculation at this point, as neither company would confirm the news. Bloomberg also reported that Apple has had discussions with OpenAI as well.

What we do know with a bit more certainty is that Apple’s new operating system will feature significant AI improvements. Bloomberg tech reporter Mark Gurman wrote in January that it could be one of the biggest updates for the iPhone and should feature AI upgrades.

CEO Tim Cook himself said on the last earnings call in February that Apple will continue to invest in “technologies that will shape the future.”

“That includes artificial intelligence where we continue to spend a tremendous amount of time and effort, and we’re excited to share the details of our ongoing work in that space later this year,” he added.

If true, a big win for Alphabet

Of the Magnificent Seven stocks, Apple and Alphabet had been the two laggards over the past year or so. Apple stock is down by about 5% year to date, while Alphabet had only been up 2% before Monday’s spike.

Apple has seen slowing sales growth for its bread-and-butter products like the iPhone and its computer devices, particularly in China and Europe. Fewer people are seeing the need to rush out and spend money on the latest versions when their current versions, aside from a few tweaks, are basically the same. However, the company is apparently trying to make a big splash with this much-hyped iOS 18 upgrade, hoping to move the needle more than recent updates.

Alphabet has gradually been losing market share in the cloud-computing business to its next closest competitor, Microsoft (NASDAQ:MSFT). A big part of that is Microsoft’s advantage in AI on its Azure cloud platform.

Alphabet is looking to boost its AI capabilities with the February launch of its Gemini Ultra generative-AI platform, which it touts as the most powerful one yet. Obviously, a partnership with Apple to build its new AI into the iPhone and other Apple products would be a significant revenue generator for Alphabet.

It is too early to draw more concrete conclusions, given the fact that this is just a rumor that ultimately may or may not come to fruition. However, the market’s reaction, particularly toward Alphabet, underscores that it would be a big win for Alphabet in the AI arms race.