The Apple-Google Gemini Partnership Could Create An AI Superpower

Alphabet, Google's parent company, significantly increased in value yesterday, concluding the day with a 4.6% rise. This surge was triggered by a Bloomberg story indicating that Apple (NASDAQ: AAPL) would choose Google Gemini as the iPhone's artificial intelligence (AI) component.

Undoubtedly, a prospective collaboration between Apple and Google Gemini in the field of artificial intelligence (AI) may resemble their agreement in search, which has faced significant regulatory examination in recent times.

Although collaboration between Google and Apple in artificial intelligence is likely to provoke strong opposition from antitrust authorities, this move is a significant advantage for both businesses as they strive to advance in the competition for AI dominance.

Given Microsoft's dominant position in generative AI via its ownership of OpenAI, Apple must devise strategies to compensate for its previous setbacks in AI. Collaborating with Google is a means to narrow the gap with industry frontrunners such as Microsoft. Moreover, Apple may gain a significant advantage by accessing Google Gemini, one of the most potent large language models (LLMs). Considering this, I maintain a positive outlook on both AAPL and GOOGL.

Apple: Collaborating with an AI behemoth might be advantageous

Although Apple has the potential to integrate its LLM into its products, I believe that Google is the superior choice at this nascent stage of the AI surge. Why? Despite the advancements made in recent quarters, LLMs are still susceptible to hallucinations, which include the creation of apparently arbitrary information.

Only time will determine when we will have a resilient, devoid-of-hallucinations LLM prepared for the market. Nevertheless, considering Apple's track record of launching refined products fully prepared for launch, I fail to see Apple introducing a work-in-progress LLM product.

Despite their unique capabilities, the current versions of Google Gemini and ChatGPT-4 Turbo are still being developed.

Both LLMs have imperfections, particularly at the current stage of the AI lifecycle, whereby hallucinations continue to occur regularly. It may need a significant amount of time for LLMs to reach a level of refinement where errors become very uncommon (or maybe practically non-existent).

We are quarters or perhaps a few years away from achieving the flawless AI that many of us consider a rare and valuable achievement in AI. Considering the rapid advancement of generative AI technology, hallucination-free LLMs may be more feasible than often believed.

It is widely acknowledged that intermittent disruptions are inevitable while using even the most advanced LLM presently available. Users of these LLMs may independently verify the sources to guarantee they are not subjected to a delusion. The process of verifying facts may be burdensome when using LLMs such as Gemini or GPT-4, but it is a relatively minor trade-off. Moreover, it falls within the spectrum of using a traditional search engine.

What are the potential prospects for the Google-Apple AI partnership in the future?

Apple may not benefit significantly from expediting the introduction of an LLM product now, particularly considering the prevalence of mistakes, unfavourable media coverage, legal disputes, public outcry, and other forms of negativity associated with contemporary LLMs.

In the future, when LLMs are more refined, Apple may consider replacing Google Gemini with its own LLM, similar to how it supported Intel (NASDAQ: INTC) in launching Mac products with its own Apple Silicon.

During the first phases of the AI boom, Apple had the opportunity to use the advantages of AI by using Gemini while avoiding the associated drawbacks. If an issue arises, the Gemini LLM, rather than Apple, bears responsibility. Meanwhile, it is anticipated that Alphabet will see increased popularity as Gemini establishes itself among Apple's extensive user base, which consists of billions of people.

Undoubtedly, the inclusion of Gemini in the iPhone has the potential to enable Google and Apple to outperform Microsoft in the LLM competition. The evolution of a prospective alliance between Google and Apple is a subject of considerable attention. However, in the event of a successful agreement, it is anticipated that the value of GOOGL stock may see significant growth, even approaching that of its leading AI counterpart, MSFT stock, even if Alphabet is compelled to make a substantial payment to Apple.

Despite seeing a significant increase of 4.6% within a single day, the GOOGL stock seems to possess little potential for further growth, as its trailing price-to-earnings (P/E) ratio stands at a mere 25.4 when compared to the trailing P/E multiple of MSFT stock, which stands at 37.7.

Analysts have classified Alphabet stock as a Strong Buy based on the allocation of 28 Buys and eight Holds during the previous three months. The mean target price for Alphabet stock is $165.09, indicating a potential upside of 12.3%.

Is the AAPL stock considered a favourable investment by analysts?

According to experts, Apple stock has been classified as a Moderate Buy, with 16 Buys, nine Holds, and one Sell issued over the last three months. The mean Apple stock price objective of $204.86 indicates a possible increase of 16.3%.

An agreement between Google and Apple Gemini AI would benefit both companies as they strive to gain a competitive advantage in generative AI. Acknowledging that our information is limited to a Bloomberg story on probable negotiations between the two firms is crucial.

The ongoing conversation indicates that something needs to be definitively established despite recent market activity indicating that a formal agreement has already been reached. Regardless, anticipate Apple's pursuit of an AI collaborator as it tries to establish a "backstop" in this developing and unrefined phase of generative AI.