Apple's Google AI Deal Was Driven by Urgent WWDC Pressure [Kuo]

Apple's deal to let Google power its next wave of AI features was driven more by necessity than strategy, according to TF International Securities analyst Ming-Chi Kuo. The company faced mounting pressure ahead of WWDC, as cloud-based AI has advanced so rapidly that simply meeting the targets set for Siri and Apple Intelligence a year ago would no longer be sufficient. User expectations have shifted, creating an urgent need for a more capable AI backend in the near term.



The partnership with Google, confirmed earlier this week, is described by Kuo as a short-term solution. He explains that Apple needed to ease the immediate burden on its engineering teams following last year's uneven AI rollout. By integrating Google's Gemini models into iOS, Apple gains time to catch up internally without risking another underwhelming showcase, even if it means relying on a rival for a critical part of the user experience.


Kuo cautions that this reliance comes with long-term risks. He compares Apple's situation to Tesla, noting that the automaker's valuation and market leadership hinge on owning its Full Self-Driving algorithms. If Tesla were to outsource that core technology, its competitive edge would likely erode. Apple faces a similar challenge by allowing a competitor to supply the intelligence layer of its operating system, potentially weakening the vertical integration that has historically defined its products. According to Kuo, Apple still has a long path ahead to fully regain control of its AI ecosystem.

Despite the Google integration, Kuo does not expect these AI features to immediately drive a major wave of hardware upgrades. While the iPhone 17 is selling well, he attributes current sales primarily to normal replacement cycles rather than AI-driven demand. Over time, however, Kuo believes AI will become a central selling point for both Apple's hardware and its operating systems.

The report also outlines when Apple may begin to reduce its dependence on external partners. Mass production of Apple's custom AI server chips is now expected to begin in the second half of 2026, with the company's own data centers planned to come online in 2027. This build-out represents the next phase of Apple's hybrid AI strategy referenced by executives last year. Once this infrastructure is in place, Kuo believes Apple will be better positioned to drive growth through its own technology, with 2027 marking a potential turning point.

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