Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 616

Have Apple and Google reached the beginning of the end?

It’s hard to imagine a world where Apple and Google (Alphabet) aren’t dominant. These two tech giants have been at the centre of our digital lives for nearly two decades - Apple through its control of the smartphone ecosystem, and Google through its command of online search. But history reminds us that no company, no matter how dominant, is completely immune to disruption.

The rise of artificial intelligence (AI) could pose the greatest threat these businesses have ever faced, and opens a plausible path for this dominance to be challenged.

Divergence within the Mag6 – Apple and Alphabet underperforming YTD

Source: Factset, 5 June 2025

Google’s grip on search is under threat

Google has long enjoyed an unshakable position in internet search, capturing more than 90% of global market share. But this near monopoly is no longer as impregnable as it once was. The emergence of large language models (LLMs) like OpenAI’s ChatGPT and newer players like Perplexity introduces a very different way to access information - one that doesn’t rely on the traditional ‘10 blue links’ model of search.

These AI systems offer more direct, conversational answers. They aggregate information across sources and present it in a more human and contextual way. For many types of queries, particularly research, how-tos, and summaries, they can be faster and more useful than Google. And these new LLM’s are beginning to take their conversational interface into commercial search, the very core of Google’s business. If users increasingly turn to LLMs for commercial queries, ad revenue will begin to migrate with this shift in engagement.

This is important as Search advertising revenue is circa 57% of Google total revenue, and given the high margin attached to it, this would translate into > 80% of Google profitability. While Youtube, Cloud and Waymo are quality and growing businesses, the key to the future value of Google remains inextricably tied to Search and this is currently under threat.

Google is investing heavily in AI through its Gemini platform, but the challenge it faces is not just technological - it’s structural. Shifting its business to meet the new paradigm of AI summaries could cannibalise its existing ad revenues. In short, Google has to disrupt itself while fending off nimbler rivals that don’t carry the same baggage - the ultimate “innovators dilemma”. To date these moves have been tentative, leaving the door ajar for competitive displacement.

‘Search’ accounts for the majority of Alphabet’s revenue

Source:  Alphabet CY24 Results

Apple’s ecosystem fortress is showing cracks

Apple’s dominance has long rested on two powerful pillars: its tightly integrated hardware led by the iPhone (which still accounts for more than 50% of revenue), and its faster growing, high-margin services business. Together, they form one of the most valuable consumer ecosystems ever built. But both sides of this ecosystem are now facing meaningful threats from technological disruption, compounded by regulatory pressure.

On the technology front, Apple looks to be slipping behind in the race to define the next user interface. As AI becomes central to how we interact with devices - through voice agents and intelligent assistants - Apple’s core interface in Siri is lagging badly. While rivals like Open AI, Meta and Perplexity are rapidly advancing conversational AI, Apple’s Siri updates are continually delayed, with the next major upgrade now not reportedly arriving until 2027. If new device platforms emerge that are built around AI-first interaction, Apple’s dominance in hardware could be challenged. We are already seeing a potential alternate device state emerge in glasses, with Meta in development with Essilor Luxottica and Google announcing a deal with Warby Parker. The acquisition by Open AI of Apple alumni Jony Ive’s AI hardware startup “io” is another strand in the intensifying AI device competitive landscape.

At the same time, Apple’s services business is under legal scrutiny. Regulators in the U.S. are seeking to block its multibillion-dollar search deal with Google; a move that could curtail a major source of annual revenue and earnings. Court documents have put this payment at around $25bn per annum or 6% of revenue. Meanwhile, pressure is mounting globally to force Apple to open its App Store to alternative payment systems and third-party downloads, weakening its ability to charge developers a 30% commission (often called the “Apple tax”). Coupled together we have approx. $55bn of high margin Apple Services revenue under threat from a tightening regulatory landscape.

Together, these risks suggest that Apple’s once-unshakeable ecosystem is increasingly vulnerable. Just as Apple rose to power during the mobile revolution, the shift toward AI at a time of greater regulatory interventions could open the door for new competitors to disrupt both its hardware and services businesses.

Lessons from history

While it is difficult to imagine a world where Google and Apple are not dominant, the technology sector is littered with examples of once-dominant firms that failed to adapt to technology platform shifts:

  • IBM was the world’s most valuable company in 1980 but lost its lead as computing moved from mainframes to PCs and then to the cloud.
  • Cisco and Intel were titans of the early internet era but struggled as the centre of innovation shifted to software and mobile.
  • Nokia and BlackBerry were synonymous with mobile phones until Apple’s iPhone and Google’s Android completely upended consumer demand.

The birth of the internet gave rise to today’s giants. The birth of AI may, in turn, create the conditions for new leaders to emerge - or for today’s leaders to stumble.

The Internet gave rise to a new era of technology leaders

Source: Bloomberg, 5 June 2025

What this means for investors

As an investor it’s tempting to stick with the familiar and extrapolate what we currently see. Apple and Google have delivered years of strong returns and are still generating exorbitant levels of free cash. But dominance in tech is rarely permanent. Disruption often starts with tiny cracks and by the time it is more obvious, the market has already repriced the winners and losers.

Now this doesn’t mean it is definitely ‘over’ for these two giants. They have faced substantial risks before and managed to morph their business to adapt to the prevailing conditions. And there are competing, more positive narratives that the breadth of Google services and depth of AI skills can see it emerge as an AI winner while Apple can position as the “on-ramp” for consumer AI engagement.

For the first time in a while, however, the wind seems to be more in these companies’ faces, and while still uncertain, a path to a substantial weakening of the Apple and Google businesses is beginning to open-up. As such, a more cautious view on these companies is warranted, and it means staying highly attuned to shifts in user behaviour, the adoption of AI tools, and focusing on where the innovation is really happening.

The companies that succeed in the AI era may look very different from those that have succeeded in the internet era and the potential weakening of Apple and Google could create the space for an AI native trillion-dollar company to emerge.

 

Trent Masters is a Global Portfolio Manager at Alphinity Investment Management. This article is general information that does not consider the personal circumstances of any individual.

 

RELATED ARTICLES

Why the tech giants still impress

Why the four tech giants are not expensive

The future of travel

banner

Most viewed in recent weeks

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Latest Updates

Investment strategies

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

Planning

Super, death and taxes – time to rethink your estate plans?

The $3 million super tax has many rethinking their super strategies, especially issues of wealth transfer on death. This reviews the taxes on super benefits and offers investment alternatives.

Taxation

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

Shares

The megatrend you simply cannot ignore

Markets are reassessing the impact of AI, with initial euphoria giving way to growing scepticism. This shift is evident in the performance of ASX-listed AI beneficiaries, creating potential opportunities.

Gold

Is this the real reason for gold's surge past $3,000?

Concerns over the US fiscal position seem to have overtaken geopolitics and interest rates as the biggest tailwind for gold prices. Even if a debt crisis doesn't seem likely, there could be more support on the way.

Exchange traded products

Is now the time to invest in small caps?

With further RBA rate cuts forecast this year, small caps may be key beneficiaries. There are quality small cap LICs and LITs trading at discounts to net assets, offering opportunities for astute investors.

Strategy

Welcome to the grey war

Forget speculation about a future US-China conflict - it's already happening. Through cyberwarfare and propaganda, China is waging a grey war designed to weaken democracies without firing a single shot.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.