Apple should acquire Perplexity AI to boost AI strategy, says Wedbush

Wedbush analyst Daniel Ives recommends Apple acquire Perplexity AI for an estimated $30 billion, asserting it is a strategic imperative given Apple's perceived lag in the rapidly escalating AI 'arms race.' Ives highlights that Apple's internal AI development and recent announcements have underwhelmed, leaving it behind competitors despite its massive user base. Acquiring Perplexity, currently valued at $14 billion, would significantly enhance Apple's AI platform, redefine its strategy, and integrate with Siri, addressing critical offensive and defensive needs in the evolving tech landscape.

Analysis

A Wedbush analyst has issued a strong recommendation for Apple Inc. (AAPL) to acquire Perplexity AI, framing the move as a strategic necessity to address its perceived lag in the generative AI sector. The analysis highlights an intensifying 'arms race' among tech giants like Nvidia (NVDA), Microsoft (MSFT), and Alphabet (GOOGL), contrasting their aggressive AI monetization with Apple's recent internal efforts, which are described as having 'massively disappointed' investors and developers. Despite possessing a dominant installed base of 2.4 billion iOS devices, Apple's current AI strategy is seen as insufficient. The proposed acquisition of Perplexity, an AI search engine valued at $14 billion, for a suggested price of approximately $30 billion, would represent a significant strategic pivot from Apple's historical preference for internal development and smaller acquisitions, such as its $3 billion purchase of Beats in 2014. According to the analyst, such a deal would 'redefine Apple’s AI strategy,' enhance Siri, and provide a crucial offensive and defensive maneuver, particularly in light of the ongoing Google search trial.

Key Decisions for Investors

• Investors in Apple should closely monitor the company's M&A strategy, as a large-scale acquisition like the one proposed for Perplexity would signal a fundamental shift from its 'build' to a 'buy' approach in the critical AI domain.
• The negative sentiment surrounding Apple's current AI capabilities, contrasted with its massive user base, presents a key valuation dilemma; a significant AI-related acquisition could act as a major catalyst to rerate the stock, while inaction could lead to further underperformance relative to AI leaders.
• Consider the competitive implications of Apple's position, as the article underscores a widening gap between Apple and aggressive AI players like Nvidia, suggesting that portfolio allocation may need to account for differing execution risks and growth trajectories within the tech sector.