The Implications of a Potential Partnership Between OpenAI and Apple

Key Takeaways:

• Apple is nearing a partnership deal with OpenAI that would bring artificial intelligence tech to the next iPhone, Bloomberg reported.
• The deal would help Apple establish itself as a benefactor of the AI boom while expanding OpenAI’s reach. Using OpenAI’s tech, Apple could upgrade Siri as the ChatGPT maker unveiled GPT-4o, a new and more capable model with voice capabilities.
• It is unclear what an OpenAI-Apple partnership would mean for Alphabet, as the iPhone maker is reportedly also in talks to use Google Gemini.
• As a major OpenAI investor, Microsoft could share some of the gains of the increased exposure of OpenAI through an Apple partnership.

Apple (AAPL) is reportedly nearing a deal with OpenAI that would bring artificial intelligence (AI) tech to the next iPhone, strengthening its position amid the AI boom and potentially increasing competition among big tech players such as Alphabet (GOOGL) and Microsoft (MSFT).

OpenAI Partnership Could Put Apple on AI Map

Under the partnership, Apple would integrate the ChatGPT maker’s AI tech into Apple’s next iPhone, according to Bloomberg. The partnership could help Apple establish itself as a major benefactor of the AI era while expanding OpenAI’s reach.

Wedbush analysts led by Dan Ives said they expect the partnership will affect iOS 18 and the upcoming iPhone 16 expected in September. The partnership “will consist of an OpenAI Chatbot with exclusive features” that build upon “on-device Apple LLMs” and “cloud-powered Apple LLMs” alongside “Apple powering AI on its own high-end chips,” the analysts wrote.

CFRA analysts noted that “most importantly” the OpenAI deal could catalyze “a slew of new revenue streams,” including increased iPhone 16 sales, subscriptions, licensing revenue, new apps, and higher advertising revenue. They wrote the “partnership would significantly boost AAPL’s AI capabilities, injecting excitement across its hardware, software, and services portfolio.”

The news comes shortly after Apple unveiled an iPad Pro powered by its new AI-capable M4 chip, last week, marking a key milestone in Apple’s push into AI. Before the iPad announcement, the iPhone maker had been quiet about its AI initiatives unlike many of its big tech peers though the company has indicated it views the emerging tech as a source of major opportunity.

AI-Supercharged Siri Could Be Coming

Analysts said that the partnership could be the beginning of a major Siri upgrade.

Wedbush analysts said they anticipate Apple will “build out a next level Siri technology with OpenAI that can do complex tasks for Apple users and more advanced features that will eventually be a separate monthly subscription service along with other AI features.”

They noted they don’t expect Apple to make an official announcement at its annual developers conference set for June 10.

CFRA analysts said that “Siri is poised to get its biggest-ever upgrade and could be marketed as potentially being the best personal assistant to consumers.”

The reports come as OpenAI announced its latest AI model, GPT-4o, at an event on Monday where the company showcased ChatGPT powered by GPT-4o’s voice capabilities.

Impact on Alphabet Unclear Amid Reports of Ongoing Apple and Google Gemini Talks

The report from Bloomberg also indicated that the iPhone maker has been in talks with Alphabet’s Google about a similar deal to use its AI model, Gemini, but has not reached an agreement.

Wedbush analysts said that they expect an Apple and OpenAI deal would be exclusive, but CFRA said it might be too early to tell.

Alphabet shares fell following the release of the report, but CFRA analyst Angelo Zino told Investopedia that the sell-off “could be premature as an OpenAI/AAPL partnership doesn’t necessarily mean that AAPL won’t strike a separate partnership with GOOGL (Gemini) for different AI capabilities tied to search.”

He did underline that “it does create more long-term risk to that search business if AAPL’s ties with OpenAI/Microsoft get stronger.”

OpenAI Deal May Strengthen Ties Between Microsoft and Apple

Microsoft has established itself as an early leader in the AI boom with its partnership with OpenAI through multi-billion dollar investments.

While Microsoft is positioned to share some of OpenAI’s gains, the deal could have minimal impact on the company beyond relationship building with Apple.

It’s “not a huge deal for MSFT at the moment,” Zino told Investopedia, though he noted that depending on the outcome of the ongoing Department of Justice (DOJ) case against Google, Microsoft could become a better cloud option for Apple, which faces its own DOJ case.

Wedbush analysts said the partnership may benefit Microsoft, writing that the “OpenAI chatbox embedded in iPhone 16 will also open up avenues of growth and the all-important developers to flock to the Apple ecosystem along with the Microsoft developer ecosystem in tow.”

“It changes the game having a tight partnership with OpenAI and for Microsoft/OpenAI” as it’s a “smart strategic move to tie themselves in with the biggest consumer installed base in the world looking forward,” the analysts said.

Apple, OpenAI, Google, and Microsoft did not immediately respond to Investopedia’s requests for comment.

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