For many investors, the recent announcement regarding Apple’s partnership with Gemini has sparked a sense of relief amidst growing concerns about artificial intelligence (AI). It is believed that the integration of a robust—if not leading—AI feature set will significantly strengthen Apple’s expansive mobile device ecosystem, which is often viewed as having a strong competitive edge.
This partnership was officially disclosed on January 12, when Google revealed that Apple’s next iteration of AI models will leverage Gemini technology in a multi-year collaboration. This strategic move means that Gemini will become a cornerstone of what Apple refers to as Apple Intelligence, forming the backbone of the upcoming Siri voice assistant, which is slated for release in 2026.
Why is this significant? This collaboration could be exactly what Apple needs to enhance its AI strategy, an area that has been more promise than performance thus far. By adopting Gemini, Apple aims to realize its AI ambitions. Our assessment suggests that a competitive—if not leading—set of AI features will further solidify Apple’s already strong position in the mobile device market.
- We commend Apple for opting to collaborate on generative AI rather than trying to create these models independently. Apple's expertise lies in developing beloved software applications, and we believe it is more advantageous for the company to utilize a powerful model like Gemini to support engaging features rather than attempting to construct cutting-edge models from scratch.
- Additionally, Apple’s commitment to security and privacy appears to remain uncompromised, as it plans to operate Gemini instances on its own servers within its Private Cloud Compute infrastructure for AI processing. Users will likely have the option to share prompts directly with Gemini, enhancing personalized experiences while maintaining data privacy.
In conclusion, we continue to uphold our fair value estimate of $240 for Apple, which boasts a wide economic moat. This partnership aligns with our long-term outlook for the company, and as a result, we consider the stock to be fairly valued. The market reaction to the announcement was relatively muted, suggesting that this collaboration was already anticipated by investors.
- We believe this partnership will safeguard Apple’s ecosystem and ongoing growth path but may not necessarily trigger a new growth phase. For a higher valuation to materialize, we would need to see Gemini catalyze a refresh cycle for iPhone hardware.
Proponents of Apple argue that if the Gemini partnership swiftly facilitates the development of new, larger models that require enhanced memory for executing advanced features, we could witness a substantial upward trend in sales. This scenario could lead consumers to purchase the latest phones to access these innovative AI-driven capabilities.
