Apple talking to AI startup Perplexity, claims report and why it pulled down Google shares

Apple is reportedly exploring acquiring AI startup Perplexity AI, valued at $14 billion, in what would be its largest acquisition to date, potentially reducing its reliance on Google. The move, led by Apple's M&A head Adrian Perica and services chief Eddy Cue, comes as Apple seeks to bolster its AI capabilities and address concerns over its $20 billion annual deal with Google, whose shares fell nearly 1% on the news. Perplexity's AI-driven search is growing rapidly, threatening Google's search dominance and advertising revenue, while Apple has also considered a partnership to integrate Perplexity's technology into Safari and Siri.

Analysis

Apple Inc. is reportedly exploring an acquisition of Perplexity AI, a move that would represent its largest-ever deal with a $14 billion valuation and significantly accelerate its competitive posture in generative AI. The discussions, while in early stages and unconfirmed by either party, signal Apple's strategic intent to mitigate its perceived lag in artificial intelligence and reduce its dependency on Google. This potential transaction directly threatens Google's lucrative $20 billion annual agreement to be the default search engine on Apple's Safari, a partnership already under pressure from U.S. antitrust regulators. The market reaction was immediate, with Alphabet's shares declining nearly 1%, reflecting investor concern over the viability of its core search advertising revenue, which totaled $162 billion in 2022. This concern is substantiated by a statement from Apple's Eddy Cue during the Google antitrust trial, revealing that Safari search volumes declined for the first time in April, a trend he attributed to the rise of AI search alternatives like Perplexity. With Perplexity demonstrating 20% month-over-month query growth, the threat to Google's traditional search model is tangible. The report also highlights the intense competition for premier AI assets, noting Meta's previously failed attempt to acquire Perplexity, underscoring the high strategic value of established AI platforms.

Key Decisions for Investors

• Investors in Alphabet (GOOGL) should recognize the heightened risk to its search dominance, as a potential Apple-Perplexity deal could dismantle the high-margin Safari partnership and accelerate the user shift to AI-native search.
• For Apple (AAPL) investors, this exploratory move is a strong positive signal of the company's commitment to closing its AI gap, potentially unlocking new ecosystem value and reducing a significant long-term dependency on a primary competitor.
• The competitive bidding for Perplexity, involving both Apple and previously Meta, indicates that premium valuations for proven AI assets will likely persist, suggesting investors should monitor for further M&A activity as a key catalyst in the technology sector.
• Traders should monitor any official statements from Apple or Perplexity, as confirmation of a deal or a formal partnership would likely cause significant volatility in both AAPL and GOOGL shares.