Apple's potential deal with Perplexity AI seen as strategic AI boost – BofA

Apple is reportedly exploring a strategic acquisition or partnership with AI startup Perplexity AI, a move Bank of America analysts view as critical for enhancing Apple's AI capabilities, improving Siri, and potentially entering the search advertising market. BofA, maintaining a "Buy" rating on AAPL, believes this integration could address Apple's perceived AI lag and reduce reliance on Google. Despite potential integration challenges and regulatory scrutiny, any positive AI development is seen as beneficial for Apple's stock performance, which has recently underperformed.

Analysis

Bank of America views Apple's reported exploration of a deal with Perplexity AI as a pivotal strategic move to counter its perception as an 'AI laggard.' The analysts, who maintain a 'Buy' rating on Apple with a $235 price objective, posit that integrating Perplexity's technology could substantially enhance Siri and enable Apple's entry into the lucrative search advertising market, thereby reducing its strategic reliance on Alphabet's Google. This development is framed as a potential catalyst for Apple's shares, which have underperformed peers amid the market's focus on AI leaders. However, the report also highlights material risks, including potential integration challenges, legal and regulatory scrutiny associated with what would be Apple's largest acquisition to date, and the risk of straining its critical partnership with Google. Even a less-committal partnership, rather than a full acquisition, is seen as a beneficial route for Apple to gain AI talent and technology.

Key Decisions for Investors

• Investors should view any confirmed deal with Perplexity AI as a significant positive catalyst, as it directly addresses the market's primary concern about Apple's competitive positioning in artificial intelligence.
• It is critical to monitor for potential antitrust scrutiny, which BofA identifies as a key risk that could complicate or delay the benefits of a full acquisition.
• This potential move represents a direct competitive threat to Alphabet's search dominance; therefore, investors with exposure to GOOGL should consider the long-term risk of Apple successfully entering the search advertising market.
• Given that even a partnership is viewed as beneficial, investors could interpret any formal relationship with Perplexity as a signal of Apple's renewed commitment to AI innovation, potentially justifying the 'Buy' rating and $235 price objective cited by BofA.