A massively anticipated artificial intelligence collaboration from Silicon Valley launched equities on a high note on Monday, just before a pivotal week for the markets.

Important Information

After Bloomberg revealed that Google and Apple are in talks to integrate Google’s Gemini generative artificial intelligence services into Apple’s iPhones, Alphabet, the parent company of Google, saw a roughly 6% increase in share prices. This could be a significant victory for Alphabet, as some have speculated that it has lagged behind rival Microsoft in the generative AI space thus far.

Major stock indexes saw large gains as a result of the Alphabet rise, which increased the company’s market valuation by almost $120 billion by lunchtime. The tech-heavy Nasdaq and benchmark S&P 500 both jumped 1.3% and 1%, respectively.

A large portion of Monday’s gains were focused on large tech companies: Apple’s stock increased by 2%, Nvidia’s stock jumped by 1% as investors anticipated the company’s CEO, Jensen Huang, to give a keynote address at the AI leaders’ afternoon conference, and Tesla’s stock increased by 6% after the company raised the price of some of its vehicles.

The eponymous “magnificent seven” equities all saw gains on Monday, adding almost $253 billion to their aggregate market value, per YCharts data.

The Federal Reserve’s Tuesday and Wednesday meetings, when the central bank will discuss its latest views on lowering interest rates, are scheduled to take place before Monday’s rally. This gathering has the potential to sabotage the positive sentiment on Wall Street because higher-than-expected interest rates would reduce companies’ ability to generate profits.

A Crucial Phrase

Since there is “clearly a major license fee attached to this,” Wedbush analysts led by Dan Ives noted in a letter to clients on Monday that getting Gemini onto iPhones would be a “major win” for Google.

What is unknown to us?

The amount Apple would have to pay Alphabet in exchange for a license to use the Gemini software on its handsets. Analyst Wamsi Mohan of Bank of America estimates that Apple is looking at a “very significant” cost for such a contract. Mohan also pointed out that the news would imply that Apple’s internal generative AI services are not competitive with Gemini or ChatGPT, the leading Gemini rival developed by Microsoft-backed OpenAI.

Important Background Information

The $18 billion yearly windfall Apple receives from Alphabet in exchange for Google becoming the default search engine on iPhones may be the most analogous arrangement. Over the past two years, Alphabet and Apple have both suffered due to a lack of enthusiasm from the market for their AI products. Just three weeks ago, Alphabet’s stock had a 5% decline due to Gemini anxiety, and Apple’s performance over the last six months has been significantly below the market as a whole.

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