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.
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.
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.
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.
