A $5 billion big contract, Apple chose its "old partner" Google's Gemini instead of the "future competitor" OpenAI

Apple is playing the role of a kingmaker in the field of artificial intelligence, rather than participating in a money-burning competition, and now Apple is betting on Google again.

According to a report by the Financial Times on Friday, Apple announced this week its most significant AI collaboration to date with Google, which will use the Gemini model to provide functionality support for the iPhone and improve the Siri voice assistant. According to insiders, the agreement will be structured as a cloud computing contract, and Apple may pay Google billions of dollars.

This deal poses a blow to OpenAI. Since 2024, OpenAI has been integrating ChatGPT with Apple's "Apple Intelligence" feature, hoping to reach millions of iPhone users. Gene Munster of Deepwater Asset Management estimates that the value of the Gemini contract could reach $5 billion, and he believes that "the integration of ChatGPT will be stillborn, as having two large models does not make much sense for Apple considering economies of scale."

OpenAI's ambition to create AI products that could compete with the iPhone may have influenced Apple's decision. Munster pointed out that last May, Apple's former chief designer Jony Ive was hired by OpenAI to develop hardware devices, which changed the situation. According to sources close to OpenAI, the company "consciously decided not to become a custom model provider for Apple" last fall, instead focusing on building its own AI devices to surpass large tech companies.

This deal reflects Apple's cautious attitude toward AI spending. Although CEO Tim Cook promised to "significantly" increase AI investment last October, Apple's investments in physical infrastructure have remained around 3% of revenue over the past five years. In contrast, since the launch of ChatGPT in 2022, Google, Microsoft, Amazon, and Meta have committed to investing hundreds of billions of dollars in new AI data centers. Apple's spending on property, plant, and equipment for fiscal year 2025 is $12.7 billion, while Google is expected to spend about $90 billion in its fiscal year.

A Script Replayed from Twenty Years Ago, Apple Bets on Google Again

Apple's bet on Gemini echoes a deal from twenty years ago—when Apple made Google's search engine the default option on its devices in exchange for a share of advertising revenue. This arrangement later brought Apple about $20 billion in revenue each year.

According to insiders, Apple chose Gemini because Google has narrowed the gap with OpenAI in model capabilities, and Apple needs a partner with a good track record in large-scale enterprise work. A person close to OpenAI stated, "This is a collaboration between two traditional players, which makes sense for them."

Another distinction for Apple among its peers is that most of its cloud infrastructure comes from third parties. However, the company is building its own "private cloud computing" infrastructure to securely handle user AI queries. Apple had previously developed its own AI models but missed the early intensive research phase funded by companies like Google for many years

Practical Choices Under Talent Drain and Investment Pressure

Apple focuses on building relatively small AI models for specific purposes, such as models that can run locally on devices and summarize text. Over the past three years, Apple's R&D spending has hovered around 8% of revenue, but the company has faced talent drain, with top AI employees being lured away by competitors' high salaries. This includes the head of its foundational model team, Ruoming Pang, as well as senior researchers Tom Gunter and Mark Lee, who have all joined Meta.

A former Apple executive stated that the company "needs to meet Wall Street and customer expectations for more action in AI." They added that the deal with Google is "a natural result of Apple's decision not to go all out in AI investment like its competitors."

Apple's cautious spending on AI has raised concerns among some investors, who worry that Apple may fall behind due to delays and failures in its early AI capabilities, despite the company's high-profile AI overhaul of Siri. Meanwhile, some market observers have expressed concerns about the AI "bubble" formed by excessive investment in computing infrastructure. Over the past 12 months, Apple's stock price has risen by more than 12%, benefiting from the strong launch of the iPhone 17 and the easing of U.S. tariff risks