Apple Is Threatening to Challenge Alphabet's Empire: Is the Stock a Buy?

Apple (NASDAQ: AAPL) has faced a wave of headwinds this year, including the prospects of higher costs, thanks to President Trump's tariff policies. The iPhone maker does significant manufacturing abroad, especially in China, the current administration's favorite tariff target. Though the U.S. and China recently announced a temporary truce to this ongoing trade war, Apple isn't out of the woods yet.

However, excellent growth opportunities for the company remain. And recent events suggest to some investors that Apple could tap into another one that would put it in direct competition with another tech leader: Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). Let's look deeper into it and discuss whether these developments make Apple stock a buy.

Image source: Getty Images.

Could Apple topple Google's dominance?

According to recent court testimony from Apple executive Eddy Cue, Apple may be planning to integrate artificial intelligence (AI) into its Safari search capabilities. Cue's testimony was part of an antitrust lawsuit against Alphabet, whose dominance in search and longstanding partnership with Apple have generated billions for the Google parent company.

If Apple moves ahead with these plans to challenge Alphabet, it could presumably become a meaningful source of revenue for the iPhone maker. Apple would be able to steal advertising dollars from Alphabet. Apple boasts more than 2.35 billion devices in circulation. That's a massive installed base -- even daily search volume for Apple users has to be enormous. Being able to monetize that could be a big win for Apple, assuming these users suddenly start using the company's Safari search engine. However, how likely is that?

Focus on the big picture

It's worth pointing out that Microsoft tried something similar last year. It infused its search engine, Bing, with AI capabilities in a bid to dethrone Alphabet. However, Google continues to reign supreme, with a runaway 90% share of the search market. In my view, Apple wouldn't find much more success than Microsoft did in challenging Google. For one, Alphabet has already added an AI overview to its search results. Second, Google benefits from an incredibly powerful brand name in search.

There is an important point to note, though. If anyone could challenge Alphabet, it might be Apple because of its massive installed base. The company's monetization initiatives won't all be successful; in my view, this one wouldn't be. But the fact that it has a giant ecosystem to monetize is a major strength. That's why Apple's services segment continues to make headway. It has more than a billion paid subscriptions.

In the company's latest update, for the second quarter of its fiscal year 2025, ending on March 29, Apple's services unit generated $26.6 billion in sales, 11.6% higher than the year-ago period. The company's total sales grew by 5% year over year to $95.4 billion. That means that once again, service sales grew way faster than device sales. Further, it is also the higher margin segment by far.

It contributes disproportionately more to Apple's gross profit. Services' gross margin for the quarter was 75.7% compared to 35.9% for devices. Count on Apple to conjure up more monetization opportunities. It is making slow and steady headway in various fields, including fintech and healthcare. And as this segment grows and makes up a larger part of the company's revenue, it will boost its bottom line.

Apple's services unit is one key reason the stock is attractive for long-term investors. The company might not topple Alphabet's search dominance, but it can still deliver superior returns.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.