AAPL stock (NASDAQ:AAPL) gained about 3% in after-hours trading on Tuesday after a federal district court judge ruled that Alphabet’s (NASDAQ:GOOG) Google can continue paying partners like Apple to remain the default search engine on their devices. The decision protects one of the most lucrative deals in Big Technology – Google’s estimated $20 billion annual payment to Apple for prime placement in its Safari web browser. The ruling ensures that this highly profitable revenue stream remains intact for now. But, could the ruling serve as a foundation to grow Apple’s services revenue further as search and services move into the AI age? It’s possible, here’s why.
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Apple holds considerable sway in its relationship with digital services providers. With over 2 billion active devices worldwide, it controls access to a massive, affluent user base of iPhone, iPad and Mac users. For Apple, the Google payments are almost pure profit, booked under its Services segment, which has become critical as hardware growth slows. Without the deal, Apple’s Services revenue would fall by about 21% and operating profit by roughly 16% based on FY’24 numbers. Services sales are expected to comfortably cross $100 billion this fiscal year. Tuesday’s ruling ensures that this cash flow continues.
Equally important, the decision signals that regulators may be reluctant to disrupt Apple’s ‘gatekeeper’ model, effectively validating its ability to monetize its distribution power. Why? Judge Amit Mehta noted that banning such payments would cause “substantial, and in some cases, crippling downstream harms” to partners such as Apple and Mozilla, the maker of the Firefox browser. Executives from both companies had defended the arrangement during the trial, with Mozilla’s leaders even testifying that Firefox might not survive without it. Can Google Stock Unlock $1 Trillion After Antitrust Victory?
Positioning Apple For The AI Age
Now there are big shifts happening in the search space. Apple noted that Safari searches dipped for the first time in April, a trend that could reflect the rising use of AI-powered search and chatbots including ChatGPT. During the antitrust trial, Apple executive Eddy Cue revealed that the company was “actively looking at” integrating AI-driven engines, citing discussions with OpenAI, Anthropic, and Perplexity. Cue suggested that generative AI applications are becoming credible alternatives to traditional search. This matters because Apple devices have historically generated nearly half of Google’s mobile search volume, giving Apple enormous leverage. If AI alters user behavior and Apple diversifies its partnerships, Google may find itself paying even more to hold on to its turf.
The judge’s ruling also leaves the door open for Apple to forge similar agreements with other providers. If Google can pay for default placement, so can Microsoft with Copilot, or emerging players like Perplexity and Anthropic. Even Google itself might structure new deals around Gemini to maintain its foothold. Apple effectively just needs to keep selling access to its high-value ecosystem. In fact, Apple could emerge as the ultimate winner in the AI shake-up, capturing incremental value regardless of which company leads the next phase of search.
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