It's no secret that Apple (AAPL +1.05%) has been a laggard in the artificial intelligence (AI) arms race. It has been outpaced every step of the way by its Android competitors. Additionally, the gap only seems to be getting wider and wider. However, Apple may be implementing a new strategy that could be a genius move.
On the conference call for the fiscal third quarter of 2025, ended June 28, Apple CEO Tim Cook commented about the company's new AI strategy, and it may be enough to vault Apple from an AI laggard to an AI leader.
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Apple could be open to acquiring a generative AI company
During Apple's quarterly conference call, Cook said Apple is open to acquiring an AI company. If it acquired an AI leader, then it could rapidly accelerate its development pace. He also mentioned that it's not focused on a specific size, which could indicate management could be going after one of the larger generative AI companies.
Some of the businesses on the short list that Apple could acquire are OpenAI, Perplexity, and Anthropic. These three tend to be among the best generative AI models that aren't already associated with a parent company (like xAI's Grok or Google's Gemini). However, an acquisition for these wouldn't come cheap.
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Key Data Points
All three of these companies are currently private, so we have relatively limited data to establish the value of the company. According to the most recent reports for each company, OpenAI was last valued at $300 billion, Anthropic at $170 billion, and Perplexity at $18 billion. At the end of Q3, Apple's cash and short-term investments totaled over $55 billion.
So, while it could probably flex its muscle and scoop up OpenAI or Anthropic at an extreme price tag, an acquisition of a company like Perplexity is probably more likely. This also would make the most sense, as OpenAI is currently partnered with Microsoft and Anthropic is linked to Amazon.
With Perplexity's relatively low valuation compared to its peers, Apple could scoop it up in an all-cash deal and immediately be in a great position in the AI arms race. I wouldn't be surprised to see a deal like this get announced within the next year, and it may not be with Perplexity; it could be with another generative AI competitor.
However, I think this route is likely as Apple has already fallen well behind its peers in this realm. But the question is, does Apple need AI to sell its products?
Apple's revenue growth is already returning despite its AI product lineup
During Q3, Apple did something it hasn't done in some time: produce double-digit revenue growth (as long as you round up).
AAPL Operating Revenue (Quarterly YoY Growth) data by YCharts
Apple has been stuck in a rut since 2022, and now it's finally showing some signs of life, despite having little AI featured compared to its peers. The question then becomes: Do AI features matter to consumers? This could be a hotly debated topic, as most users likely aren't using the AI capabilities of Android phones, and Apple users may not care.
But there could be a time someday when users are comfortable using AI features, and the specific AI model on a phone becomes a huge selling point. We're not there yet, so Apple still has some time to catch up in the AI arms race. However, we'll reach that point eventually, and if Apple doesn't do something major, like acquire an AI company, it could be left in the dust over the long term, even if it isn't feeling the pain right now.
I think Apple's new strategy could be genius if it makes a move to acquire a company like Perlexity, and the entire investment thesis surrounding Apple would improve overnight. But if it fails to do so, Apple could be on the outside looking in a few years from now.
