What Apple’s OpenAI Partnership Could Mean for Microsoft and Google

Apple (AAPL) announced an artificial intelligence (AI) partnership with Microsoft-backed (MSFT) OpenAI at its highly anticipated Worldwide Developers Conference (WWDC) keynote Monday, which could benefit Microsoft as a major investor in the ChatGPT maker. It could also lead to Alphabet’s (GOOGL) Google Gemini being integrated into the iPhone.

Apple and OpenAI Team Up

As part of Apple’s partnership with OpenAI, ChatGPT will be integrated into iOS 18 later this year. The new operating system will be available in the fall as a free software update for iPhone Xs and newer devices, while Apple Intelligence, a personal intelligence system, will be available in beta as part of iOS 18 in the fall on iPhone 15 Pro, iPhone 15 Pro Max, and iPad, as well as Macs with an M1 chip or later.

Apple Intelligence coupled with OpenAI’s ChatGPT is expected to supercharge Siri with enhanced natural speech abilities, personal context from on-device content, and in-app capabilities.

The company said that Apple devices will ask users for permission before sending user data to an OpenAI server.

Microsoft Could Share in Gains

As a major OpenAI investor, Microsoft could share some of the gains of the increased exposure of OpenAI through the Apple partnership. Microsoft has established itself as an early leader in the AI boom with its partnership with OpenAI through multi-billion dollar investments.

Ahead of the Apple and OpenAI partnership announcement, Wedbush analysts said it could benefit Microsoft as “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.

A stronger relationship with Apple could also prove beneficial for Microsoft amid an ongoing Department of Justice (DOJ) case against Google, which could lead Apple to view Microsoft as a better cloud option.

Google or Amazon AI Partnership Could Be Next

Apple also said it plans to integrate other models into its devices, which Bank of America analysts said could mean an agreement with Alphabet’s Google or Amazon (AMZN) partner Anthropic.

This could be good news for Alphabet, though Bank of America analysts noted concerns that OpenAI’s partnership with Apple could lead to higher AI usage as an alternative to search, which would hurt Alphabet’s search business.

The analysts said they “see new technology partnerships for iOS as an ongoing concern for Google’s long-term competitive moat, and the concern could elevate if OpenAI launches a search product in 2H’24,” but noted that “reports have suggested that Google’s search contract with Apple could be through 2026, so Google’s near-term search position on iOS may be secure.”

While there may be some gains for OpenAI for producing the first AI model integrated into the iPhone, Apple’s plans to integrate other models could also help Google compete with the chatbot pioneer.

Apple shares rose to a record high in intraday trading Tuesday, and were up over 6% at $204.78 as of 2:15 p.m. ET. Microsoft shares were up 0.5% at $429.80, while Alphabet shares were 0.3% higher at $175.52.