Analyst sees Apple partnership with Alibaba as potential ‘critical catalyst’

Commenting on a media report saying Apple (AAPL) is partnering with Alibaba (BABA) to roll out artificial intelligence features for iPhone users in China, Morgan Stanley says that if such a partnership is confirmed, it should be viewed as “a critical catalyst for Apple’s competitive standing in China.” BofA also discussed the news, arguing that it shows Apple’s desire to swiftly launch AI features in China.

AI PARTNERSHIP: Apple has recently started working with Chinese internet giant Alibaba to develop artificial intelligence features for iPhone users in China, The Information’s Qianer Liu and Jing Yang report. Apple had selected Baidu (BIDU) as its main partner last year, but the Chinese company’s progress in developing models for Apple Intelligence fell short of its standards, the report said.

CRITICAL CATALYST: After The Information reported that Apple has partnered with Alibaba to bring AI features to iPhone users in China, Morgan Stanley says that if such a partnership is confirmed, the firm would view it as “a critical catalyst for Apple’s competitive standing in China.” While admitting to no knowledge of Apple’s internal decisions, Morgan Stanley notes Alibaba is the largest e-commerce player in China, so it could have “a treasure trove of data that Apple could look to leverage in delivering personalized GenAI features to Chinese consumers,” says the analyst, who adds that the firm could also see a scenario where Apple creates an initial AI partnership with Alibaba that eventually expands to other local Chinese cloud players over time. The firm maintains an Overweight rating and $275 price target on Apple shares.

AI FEATURES IN CHINA: Following The Information’s report, BofA notes Apple’s smartphone share has been pressured in China, and while it was announced last year that Apple was partnering with Baidu for AI in China, Apple ended the project because Baidu’s models developed for Apple Intelligence were not up to Apple’s standards. Tuesday’s news shows Apple’s desire to swiftly launch AI features in China, the firm says. BofA has a Buy rating and $265 price target on Apple shares.

Of note, currently, Apple Intelligence is only available on iPhones in the U.S., Australia, Canada, New Zealand, South Africa, and the U.K. However, Apple Intelligence is available in the E.U. but only on Mac OS with Apple noting “many core features of Apple Intelligence” will roll out for E.U. customers on iPhone and iPad in April.

PRICE ACTION: In Tuesday afternoon trading, shares of Apple have advanced almost 3% to $233.91, while Alibaba’s stock has gained about 2% to $113.40.