Apple is falling behind in the AI race, and the only way it can catch up is by buying the AI startup Perplexity, according to a top analyst.
Dan Ives of Wedbush Securities said it’s clear Apple is incapable of producing its own AI in-house, despite a company culture that strives to build superior products internally. In recent days, some of Apple’s top AI talent has also been poached by increasingly aggressive AI talent recruiter Meta, Bloomberg reported.
Meanwhile, competitors are increasingly outdoing the company.
“Apple is at a highway rest stop on a bench watching this 4th Industrial Revolution race go by at 100 miles an hour,” wrote Ives in a Wednesday note.
Apple did not immediately respond to Fortune‘s request for comment.
Ives was more hopeful about Apple’s AI prospects in January, despite writing that the company was facing a “fork in the road” year on the technology. At the time, he highlighted Apple’s clearest advantage in the AI arms race: its existing base of 1.5 billion iPhones and 2.3 billion iOS devices used by people around the world.
In his Wednesday note, Ives struck a more apprehensive tone, adding Apple still retained the advantage of its widespread devices and could eventually win the AI race, but that its “window is narrowing.” Apple’s most recent WWDC, its annual event for showcasing new tech, also “was a snoozer,” Ives wrote, and barely mentioned AI.
“Apple is way too behind and does not have the AI technology to compete. The clock has struck 12, they need to acquire Perplexity or risk getting further behind,” Ives told Fortune in an email.
Even if Apple has to pay around double what it is currently worth, it should acquire Perplexity, he wrote. The San Francisco-based startup, reportedly worth $14 billion, has made strides among AI enthusiasts for citing links to articles and other information when its AI responds to queries. Perplexity on Tuesday also launched Comet, an AI-based web browser, for select subscribers, in its latest effort to compete with tech giants Google and Microsoft.
Yet, Tomasz Tunguz, the founder of Theory Ventures, which invests in early-stage enterprise AI startups, said acquiring Perplexity would come with myriad privacy considerations for Apple. The company is used to providing end-to-end encryption for products like iMessage and FaceTime, and would need to find a solution for how Perplexity would run, either locally or on a secure cloud architecture.
“They would need to have a lot of confidence they could build an architecture from end to end that had that privacy component,” Tunguz told Fortune.
Kevin Novak, founder and managing partner of early-stage AI investment firm Rackhouse Ventures, said it’s unclear whether a large acquisition would work for Apple. The company has tried to maintain the pro-building ethos of Steve Jobs for much of its history, and has been shy to acquire. Among its largest acquisitions was its $3 billion purchase of Beats electronics in 2014.
“This would be challenging for any company, but especially given Apple’s sort-of corporate ethos around perfectionism, may be especially challenging for Apple,” Novak told Fortune.
Still, Ives, for his part, said he believes Perplexity could be a natural fit for Apple and could especially help level up Siri to make it many people’s most frequent exposure to AI.
“If Apple acquires Perplexity, the combined forces of Cupertino with Perplexity would be a game changer on the AI front and rival ChatGPT given the scale and scope of Apple’s ecosystem,” wrote Ives in the note.
