Apple switches to Google’s Gemini after rejecting Anthropic, OpenAI deals
Apple held talks with Anthropic and OpenAI to power its next-generation Siri but declined Anthropic after it sought several billion dollars annually, and OpenAI was viewed as a competitive partner. Instead, Apple partnered with Google to integrate Gemini into Siri at a cost of billions while preserving user privacy.
1. Strategic AI Partnership with Google
In January, Apple announced a multi-year agreement to integrate Google’s Gemini large-language models into its next-generation Siri and Apple Intelligence platform. Under the deal, Apple will pay Google “billions of dollars” over the contract term, funding Google’s cloud infrastructure while retaining on-device privacy controls. Executives expect this partnership to accelerate AI-driven features—such as conversational search, real-time language translation and contextual task assistance—potentially driving a new wave of device upgrades and service subscriptions starting in spring 2026.
2. Robust Holiday Quarter Performance and Q1 Outlook
Based on channel checks in the U.S. and China, iPhone 17 unit shipments exceeded 85 million during the December quarter, representing year-over-year growth of approximately 15%. Services revenue—which includes App Store, Apple Music and subscription bundles—rose 20% to over $24 billion. For the fiscal first quarter ending January, management guided to overall revenue growth of 10–12%, led by double-digit increases in both iPhone and Services, and projected operating cash flow near $30 billion.
3. Share Repurchase Activity and Capital Allocation
In calendar 2025, Apple deployed nearly $170 billion of operating cash flow, of which $150 billion was allocated to share repurchases. At an average buyback price near $275 per share, the company retired roughly 540 million ADS equivalents—reducing share count by 4%. Despite premium valuations, the board maintained its authorization for an additional $90 billion, citing a weighted average cost of capital below 6% and expected return on incremental buybacks above 12%.
4. Investor Concerns and Growth Drivers Beyond Hardware
While holiday quarter metrics impressed analysts, consensus estimates still project Apple’s annual revenue growth moderating to 6% by fiscal 2027. Key variables include the timing of AI feature roll-outs, the pace of Service ARPU expansion beyond the current $70 per user, and supply-chain cost headwinds—particularly memory inflation and tariff exposure contributing to gross margin pressure of up to 50 basis points next year. Investors will closely track Apple’s ability to monetize AI features through premium software tiers and potential new revenue streams such as on-device ad placements and subscription bundles.