Apple Faces Calls To Reboot AI Strategy With Shares Slumping

Apple didn’t respond to a request for comment. The stock fell 1.3% on Monday.

The company has long shunned acquisitions in favor of building its own products. The largest acquisition in Apple’s history was a $3 billion deal for headphone maker Beats more than a decade ago.

There are signs that Apple may be warming up to such a move. Bloomberg News reported last month that executives have held internal talks about making an offer for AI startup Perplexity AI, which would add talent and help Apple develop an AI-based search engine. The startup recently completed an investment round that valued it at $14 billion.

Dan Ives, an analyst at Wedbush who is a long-time Apple bull, called buying Perplexity a “no brainer,” and said even if Apple paid $30 billion, that sum would be “a drop in the bucket relative to the monetization opportunity Apple can achieve on AI.”

Since unveiling its AI vision more than a year ago, Apple’s roll outs of new features have underwhelmed, such as those unveiled at its Worldwide Developers Conference last month. The company has reportedly considered using AI tech from outside companies, rather than in-house models, to power a new version of its Siri digital assistant.

Kevin Cook, a senior stock strategist at Zacks Investment Research, wants Apple to be more like Meta when it comes to hiring AI experts but stops short of calling for more dramatic changes, saying that concerns about its AI shortfalls are overblown.

“A refocus on AI talent is what’s needed,” said Cook. “Apple certainly has challenges, but this isn’t like Google, which could more easily have been usurped by competitors if it fell behind,” he said.

Meta Chief Executive Officer Mark Zuckerberg has spared no expense in pursuing his AI ambitions. The Facebook owner recently lured an engineer that ran Apple’s AI models team with a pay package in the hundreds of millions of dollars over a several year period and Apple didn’t try to match the offer, Bloomberg News reported last week. That followed Meta’s deal to invest $14.3 billion in Scale AI last month.

Of course, Apple has plenty of resources at its disposal to make similar moves. The company had cash and marketable securities of $133 billion at the end of March, nearly twice the cash on Meta’s balance sheet.

There have been some notable changes at Apple recently. Chief Operating Officer Jeff Williams is retiring after a decade in that role. And Luca Maestri, Apple’s longtime chief financial officer, stepped down last year.

Over the weekend Bloomberg News reported that chief executive officer Tim Cook will stay put, though the company is preparing for a broad management shake-up.

Analysts at LightShed Partners say a shake up is “exactly what Apple needs right now,” even if that means Cook is replaced as CEO. “Missing on AI could fundamentally alter the company’s long-term trajectory and ability to grow at all,” Walter Piecyk and Joe Galone wrote in a note to clients on July 9.

While not calling for a change in leadership at the top, Paul Meeks, senior analyst and managing director at Water Tower Research, agrees that the iPhone maker needs to do “something bold.”

“A significant deal would not only help them in AI, but show it is committed to a culture change and course correction. It can’t do AI on its own,” he said.