Apple (AAPL) is trying to hold on to China, and it just made a bold move that’s ruffling feathers in Washington. According to various reports, Apple is teaming up with Alibaba (BABA) to bring advanced AI features to iPhones in China. The reason is that U.S. models like OpenAI’s ChatGPT aren’t allowed there. So, Apple is turning to Alibaba’s Qwen AI instead.
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Now, is it a smart move to protect market share, or a risky deal that could backfire at home? It depends on who you ask.
The Stakes in China Are Huge
China is Apple’s second-biggest market with reported revenue in Q1 2025 reaching $16 billion, but it’s also one of its most fragile. iPhone sales have been slipping, while local brands like Huawei are gaining fast. With U.S.-China tensions still simmering, Apple is under pressure to stay relevant without crossing any political red lines.
The deal with Alibaba reportedly gives iPhones in China new AI powers: smarter Siri, better photo search, auto-summarizing text, and more. Basically, everything “Apple Intelligence” is supposed to do elsewhere, just running on a Chinese AI engine.
Meanwhile, on the other side of the Pacific, lawmakers in the U.S. aren’t thrilled. They’re asking tough questions: What kind of data will Alibaba get access to? Is Apple compromising privacy to stay in Beijing’s good graces? Could this boost China’s AI ambitions at America’s expense?
It feels like a risky position to be in. Apple could get caught in the crossfire, and the fallout could go beyond China.
So, What’s the Investor Takeaway?
In the short run, this deal could help Apple stop the bleeding in China. The market’s too big to ignore, and localizing AI features is probably the only way to keep iPhones competitive.
However, if regulators crack down on cross-border AI partnerships, other tech firms, especially those with global exposure and China-facing ambitions, could feel the ripple effects.
Apple is trying to perform a delicate dance: stay relevant in China, advance AI, and keep regulators happy back home. But balancing all three will be challenging. For investors, this story isn’t about one headline but a deeper trend: Big Tech navigating a world where politics, privacy, and profits are more tangled than ever.
Apple’s next earnings may still look strong. But if this deal turns into a geopolitical flashpoint, sentiment and maybe even valuation could shift fast.
Is Apple a Buy, Sell, or Hold?
The Street’s analysts rate Apple a Moderate Buy, with an average AAPL stock price target of $228.65, which implies an 11.28% upside.
