Apple’s once-reliable services revenue is entering uncertain territory. The company’s $20 billion annual deal with Google—to remain the default search engine on iPhones—is now under antitrust scrutiny. Analysts at Morgan Stanley warn this deal’s fate could drastically alter Apple’s financial trajectory.
During a recent court appearance, Apple’s Senior VP Eddy Cue claimed that search activity on Safari had declined. He also disclosed talks with alternative AI search partners like Perplexity. While Cue emphasized Apple’s openness to new partnerships, analysts believe the testimony aimed to downplay Apple’s reliance on Google, potentially softening regulatory pressure.
A $20 Billion Gamble
The stakes are high. If regulators force Apple to drop Google, the company could lose a massive stream of revenue nearly overnight. Morgan Stanley estimates that without Google, Apple would struggle to match earnings through any in-house or AI-based search alternative. Despite exploring tools like Perplexity and ChatGPT, these platforms grow independently and may not need Apple to thrive.
Even if Apple shifts to AI-driven search, users would likely pay services like Perplexity directly. This bypasses Apple’s payment system, cutting it out of revenue entirely.
Hope in Apple Intelligence and Market Positioning
Still, the outlook isn’t entirely bleak. Morgan Stanley’s “bull case” suggests that if Apple keeps the Google deal or effectively pivots to AI, it could maintain or even grow its services income. The firm highlights Apple’s strengths in AI, health, and home tech—sectors that could yield massive returns over time.
Apple Intelligence, its AI platform, could play a vital role. Surveys show iPhone users might pay $9/month for premium AI features. If monetized, Apple Intelligence could become a key revenue driver, especially if integrated deeply across Apple’s ecosystem.
