Apple's Google Partnership: Can It Justify Current Valuation and Push Up Stock Performance in 2026?

Apple’s recent multi-year collaboration with Alphabet marks a strategic shift in its AI approach. Under this deal, Apple Intelligence—including enhanced Siri capabilities—will leverage Google’s Gemini models and cloud infrastructure, while still maintaining on-device processing and privacy through Apple’s Private Cloud Compute framework. But can this partnership actually push up the stock’s trajectory, or is the valuation already pricing in too much optimism?

The AI Execution Problem Apple Needs to Solve

Apple has been playing catch-up in the artificial intelligence race against heavyweight competitors. While Alphabet, Microsoft, and Amazon aggressively scaled their AI offerings—with Alphabet embedding AI across Search, Microsoft securing $250 billion in additional Azure commitments for Copilot expansion, and Amazon powering enterprise AI through AWS—Apple stumbled with timing and execution.

The core issue: Apple’s commitment to on-device processing and privacy became a constraint compared to cloud-native competitors that could scale faster and accumulate knowledge more aggressively. Apple Intelligence features arrived late to key markets like Greater China, dampening adoption momentum. The Gemini partnership addresses this directly by combining Google’s scaled models with Apple’s privacy-first architecture—potentially solving execution bottlenecks without compromising the company’s privacy positioning.

Services Revenue: The Real Growth Engine

Here’s what investors might be underestimating: the Services segment, representing roughly 26% of Apple’s net sales, stands to benefit significantly from improved Apple Intelligence adoption. This business encompasses advertising, AppleCare, cloud services, digital content (Arcade, Music, Fitness+, TV, News+), and payment services.

The momentum is already visible. In 2025, the App Store averaged 850 million weekly users globally, with developers earning over $550 billion cumulatively since 2008. Apple TV+ drove 36% year-over-year growth in total hours viewed. Apple Pay eliminated over $1 billion in fraud while generating $100 billion in incremental merchant sales globally—now available in 89 markets. Apple Fitness+ expanded to 28 additional countries, while Arcade added 50+ new titles.

Better AI-powered Siri and personalized features could accelerate this Services growth trajectory, particularly among app developers considering building on Apple’s platform.

Valuation Concerns Cloud the Outlook

Despite these tailwinds, Apple shares have appreciated just 11.3% over the trailing 12 months—significantly underperforming the Computer and Technology sector’s 29.9% return. More strikingly, Apple lagged Alphabet (75.1%), Microsoft (14.8%), and Amazon (13.1%) considerably.

The stock carries valuation concerns. Trading at a forward 12-month price-to-sales ratio of 8.27X versus the sector average of 7.47X and Amazon’s 3.3X, Apple appears stretched. A Value Score of F underscores this concern, suggesting the current price may already reflect bullish assumptions about the Google partnership benefits.

Financial Projections Offer Modest Support

The Zacks Consensus Estimate for Apple’s first-quarter fiscal 2026 earnings increased 3 cents to $2.65 per share over 60 days, implying 10.42% growth year-over-year. Revenue expectations hit $137.40 billion, representing 10.54% growth from the year-ago period.

These figures are solid but not transformative—hardly the catalyst to push up valuations significantly higher from current levels.

The Verdict: Strategic Yes, Valuation Caution

The Google partnership addresses a real operational challenge and positions Apple to compete more effectively in enterprise and consumer AI markets. Services revenue could indeed accelerate if adoption improves. However, stiff competition in China, tariff uncertainties, and a premium valuation relative to peers suggest caution.

Apple currently holds a Zacks Rank #3 (Hold). For investors already holding, the Google collaboration offers incremental upside potential. For prospective buyers, waiting for a more attractive entry point makes sense before committing capital to what remains an expensive tech stock despite its quality fundamentals.