$5 billion mega contract: Apple chose its “old partner” Google’s Gemini, instead of “future competitor” OpenAI.

Apple is playing the role of kingmaker in the field of artificial intelligence, rather than participating in a cash-burning competition. Now, Apple is once again betting on Google. According to a report by the Financial Times on Friday, this week Apple announced its most significant AI partnership to date with Google. Apple will use Google's Gemini model to power iPhone features and improve the Siri voice assistant. According to sources, the agreement will be structured as a cloud computing contract, and Apple may pay Google billions of dollars. This deal is a blow to OpenAI. Since 2024, OpenAI has been integrating ChatGPT with Apple’s "Apple Intelligence" initiative, aiming to reach millions of iPhone users. Gene Munster of Deepwater Asset Management estimates that the Gemini contract could be worth up to $5 billion. He believes "ChatGPT integration will be dead in the water, and considering economies of scale, having two large models doesn’t make much sense for Apple." OpenAI's ambition to develop AI products that may compete with iPhone could have affected Apple's decision. Munster points out that in May last year, Apple's former chief designer Jony Ive was hired by OpenAI to develop hardware devices, changing the dynamics. According to people close to OpenAI, the company "consciously decided not to become Apple’s custom model provider" last fall, choosing instead to focus on building its own AI device to surpass big tech companies. The deal reflects Apple’s cautious spending on AI. Although CEO Tim Cook promised last October to "significantly" increase AI investment, Apple’s investment in physical infrastructure has held steady at about 3% of revenue over the past five years. In contrast, since ChatGPT’s launch in 2022, Google, Microsoft, Amazon, and Meta have pledged to invest hundreds of billions of dollars in new AI data centers. Apple’s budget for property, plant, and equipment in fiscal 2025 is $12.7 billion, compared with Google’s estimated spend of about $90 billion in its fiscal year. History repeats itself: Apple bets on Google again after twenty years Apple’s bet on Gemini echoes a deal from twenty years ago—when Apple made Google Search the default on its devices, in exchange for a share of ad revenue. That arrangement has since brought Apple about $20 billion in annual income. Sources say Apple chose Gemini because Google has narrowed the gap in model capability with OpenAI, and Apple needs a partner with a strong track record in large-scale enterprise work. A person close to OpenAI said, "This is a partnership between two traditional players, and it makes a lot of sense for them." Apple is also different from its peers in that most of its cloud infrastructure comes from third parties. However, the company is building its own "private cloud computing" infrastructure to securely process users' AI queries. Apple previously developed its own AI models but missed the early intensive research phase that companies like Google supported for years. Pragmatic choice amid talent loss and investment pressure Apple focuses on building relatively small AI models for specific purposes, such as models that can run locally on devices or summarize text. Over the past three years, Apple's R&D spending has hovered around 8% of revenue, but the company has faced a drain of talent, with top AI staff poached by competitors paying high salaries. This includes the head of its foundational models team, Ruoming Pang, as well as senior researchers Tom Gunter and Mark Lee, who all moved to Meta. A former Apple executive said the company "needs to meet Wall Street’s and customers’ expectations for doing more in AI." They added that the deal with Google is "the inevitable result of Apple deciding not to 'go all out' in AI investment like its rivals." Apple's cautious spending on AI has raised concerns among some investors, who worry the company could fall behind, since its early AI features have faced delays and bugs, despite its high-profile AI overhaul of Siri. Meanwhile, some market watchers are worried about an AI "bubble" formed by over-investment in computing infrastructure. Over the past 12 months, Apple's stock price has risen more than 12%, boosted by the strong launch of the iPhone 17 and easing U.S. tariff risks. Risk Warning and Disclaimer The market has risks, and investment needs caution. This article does not constitute personal investment advice, nor does it take into account individual users’ specific investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article fit their particular circumstances. Investment based on this, you bear your own responsibility.