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Update: The story was updated with stock price movement and information from Wedbush's research note.
Apple (NASDAQ:AAPL) is in discussions to fit Google's artificial intelligence model Gemini into the iPhone, Bloomberg News reported, citing people with knowledge of the matter.
Google parent Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) stock rose about 7% on Monday, while Apple shares were up about 3% following the report.
The two tech giants are in talks to let Apple license Google's AI model Gemini to power some new features which would come to the iPhone software in 2024, the report added.
Apple was also in talks with Microsoft (MSFT)-backed OpenAI and has considered using its AI model, the report noted.
The Cupertino, Calif.-based Apple is preparing new capabilities as part of the iPhone's upcoming operating system iOS 18. However, these updates will be focused on features which operate on its devices, rather than ones provided through cloud. So Apple is looking for a partner for generative AI, including features such as creating images and written content based on prompts.
The companies have not decided on the terms of the potential AI agreement, and the report noted that it was unlikely that any deal would be announced until June, when Apple intends to hold its annual Worldwide Developers Conference. It is also possible that an agreement is not reached or that Apple may choose another partner, the report noted.
Since early last year, Apple has been evaluating its own large language model, known as Ajax. Certain employees also have been testing a basic chatbot internally known as Apple GPT, as per the report.
Wedbush — which maintained its Outperform rating on Apple — said the potential Apple-Google AI partnership is part of a broader aggressive iPhone AI strategy.
"This is a major win for Google to get onto the Apple ecosystem and have access to the golden installed base of Cupertino with clearly a major license fee attached to this," said a team of analysts led by Daniel Ives, referring to Apple's headquarters in Cupertino.
For Apple, it would give them the foundation and technology blueprint to double down on AI features currently being developed within Apple Park to make sure that iPhone 16 will be a potential game changer iPhone release around AI functionality, the analysts added.
Ives and his team believe the potential partnership is part of a broader strategy they expect Apple to go after including its own AI App Store (as developers build AI apps, including a potential subscription fee) and additional AI features built into the iPhone 16.
The analyst expects this to be an Apple branded solution, however, the deal is not final and details need to be worked out.
Apple has been slower in rolling out generative AI compared to competitors such as Microsoft (MSFT) and Google, which have been building these AI models into their products.
At Apple's (AAPL) shareholder meeting last month, CEO Tim Cook said the company would disclose more about its generative AI plans later this year, noting that iPhone maker sees "incredible breakthrough potential" for the technology.
A further collaboration between Apple and Google could draw the attention of regulators. The two already have an agreement which allows Google to be the default search engine on Apple's Safari web browser.
This deal for the search feature is already under scrutiny in a lawsuit by the U.S. Department of Justice, which has alleged that Google pays over $10B a year to maintain its position as the default search engine on internet browsers and mobile devices, thereby curbing competition.
The search engine collaboration is also under fire in the EU.
In January, it was reported that Google collaborated with Samsung (OTCPK:SSNLF) to deploy several generative AI powered products in the South Korean company's new Galaxy S24 series of smartphones.