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Wedbush said Perplexity is the “no brainer” deal to help launch Apple’s (NASDAQ:AAPL) AI strategy.
The firm has an Outperform rating and $270 price target on Apple’s stock.
“The reality now is that AI technology on the enterprise and consumer landscape are happening at such a rapid pace Apple will not be able to catch up with an internally built solution to turn Siri into the next AI gateway for consumers,” said analysts led by Daniel Ives.
The analysts added that while Apple is fearful of acquisitions historically, with its largest deal being the Beats deal for $3 billion in 2014, they believe CEO Tim Cook needs to finally do an M&A deal, and perplexity is the answer, according to them.
The analysts noted that Meta Platforms (META) was also behind on AI like Apple, but Mark Zuckerberg is now on the “AI war path” acquiring talent and AI engineers from across Silicon Valley with eye-popping pay packages along with the $14B Scale AI investment.
“In turn, we believe this is putting even more pressure on Apple to do something bold and developers need an AI platform…Perplexity is the answer,” said the analysts.
Last month, it was reported that Apple had internal discussions about acquiring AI search startup Perplexity.
Ives and his team said Perplexity is an AI search engine that could redefine Apple’s AI strategy and would fit in very well with Siri. Perplexity’s AI algorithms and technology are some of the most impressive in the tech AI world and the current investing round puts the valuation at about $14B.
“If Apple has to pay ~$30 billion, it’s a drop in the bucket relative to the monetization opportunity Apple can achieve on AI in our view. We also believe with the current Google search trial going through the courts Apple needs to play both defensive and offensive when it comes to the AI Revolution and search partners,” said Ives and his team in a research note.
The analysts noted that If Apple acquires Perplexity the combined forces of Cupertino with Perplexity would be a game changer on the AI front and rival ChatGPT, developed by OpenAI, given the scale and scope of Apple’s ecosystem.
“Investors would loudly cheer a Perplexity deal and it would get Cupertino off this AI treadmill on 2.0 speed. The time has come for Apple to do a big M&A deal..and its Perplexity,” the analysts added.
Ives and his team said that with the biggest consumer installed base in the world with 2.4 billion iOS devices and 1.5 billion iPhones, Apple “does not have to be first out of the gates on AI and can still win the consumer AI Revolution race….BUT that window is narrowing and it’s a worrying dynamic for Apple.”