Why Apple stock hit a new all-time high today

What happened

Apple‘s (NASDAQ: AAPL) The stock price climbed 3% to a record closing high of $ 153.12 on Monday, following an intriguing analyst report.

So what

Alphabet‘s (NASDAQ: GOOGL) (NASDAQ: GOOG) According to Bernstein analyst Toni Sacconaghi, Google could pay Apple around $ 15 billion this year to keep its place as the default search option on iOS. This is an increase from the $ 10 billion estimated in 2020.

Sacconaghi postulates that the deal with Google will increase Apple’s service revenue growth by 8.5 percentage points – and account for up to 9% of the iPhone maker’s gross profits in fiscal 2021.

Now what

It’s not hard to see why Google would be willing to pay such large sums. Despite its efforts to diversify its business, advertising revenue still represents the lion’s share of its profits. And while Google remains the dominant search engine in the United States and many other parts of the world, the last thing it wants to do is let itself compete. Microsoft outbid and recover market share.

As for Apple, there is little to lose and a lot to gain. Google is clearly the most popular search engine, and the vast majority of its users would likely choose Google for their search needs. Apple also allows its users to choose from different search providers, such as Microsoft’s Bing, if they prefer a different option. So just to do something that most of its customers would do anyway, Apple would be making billions of dollars in high margin revenue.

The risk, however, is that regulators decide to block those payments to limit Google’s ability to stifle competition. Yet for today, at least, investors seem to take a more bullish view – and are offering Apple shares in kind.