Apple Hints at Potential Large AI Acquisition
Apple (AAPL) CEO Tim Cook hasn't revealed his strategy – but the company just made a notable shift before his successor, John Ternus, officially takes over. The sudden change in the iPhone maker’s financial strategy suggests a large acquisition may be coming soon as the company prepares to launch its long-awaited AI features later this year.
Apple isn’t known for being an early adopter of new technologies or for splurging on splashy acquisitions. While other Big Tech companies have raced to invest hundreds of billions of dollars in capital expenditures, Apple has largely sat on the sidelines—returning capital to shareholders through stock buybacks and dividends.
However, Apple may soon be joining the game. On Thursday’s second-quarter earnings call, Apple said it would abandon its long-held net cash neutral target.
As early as 2018, Apple began drawing down its massive cash reserves, aiming to keep cash and debt levels roughly equivalent, but Apple said it will now evaluate each of those metrics separately. The decision will help the company “make better capital allocation decisions about how to optimally deploy our debt and cash mix to support the business,” CFO Luca Maestri said.
“We believe the leadership transition with the new CEO signals future acquisitions, which is a relief to investors,” Wedbush analyst Dan Ives wrote in an email.
Charles Reinhard, chief investment officer at Johnson Investment Counsel, said large tech companies have been more actively deploying their balance sheets, lowering cash levels and taking on debt to fund AI capital expenditures. “Apple is clearly aware of that backdrop,” Reinhard said.
“We’re also seeing concrete signs that AI demand is impacting Apple’s business, including unusually strong demand for products like the Mac mini and Mac Studio, which are increasingly used for AI and agent workloads,” Reinhard added. He believes this likely influenced Apple’s decision to abandon its net cash neutral target.
Apple has been increasing its internal AI investment, as evidenced by a 23.7% year-over-year increase in operating expenses, including a 33.6% increase in R&D spending. But Apple’s new cash management strategy could open the door for external growth through acquisitions.
“It’s a functional change, they’re signaling something, and we can only speculate,” Creative Strategies CEO and chief analyst Ben Bajarin posted on X. “More capital expenditure, M&A, something outside of Apple’s historical norm is coming.”
Investors frustrated with Apple’s slow progress in AI have long speculated that the company might eventually become more acquisitive. They worry that Apple will fall behind in AI innovation, and some believe that funding a business transformation is a more effective use of cash than stock buybacks and dividend payments.
Apple’s upcoming overhaul of Siri, powered by Google’s Gemini AI model, has been another point of contention. In a January report, Radio Free Mobile founder Richard Windsor wrote that Apple needs to develop or acquire its own AI, rather than relying on Google.
The partnership with Gemini is just one piece of Apple’s AI strategy. The company is also developing its own in-house foundation models to power on-device AI features. Apple CEO Tim Cook said on Thursday that balancing these two approaches will require increased investment.
Rumors of potential acquisitions have been circulating for months. Last year, reports surfaced that Apple was in internal discussions about acquiring AI startup Perplexity. Perplexity, known for its agent solutions, was mentioned on yesterday’s earnings call. Maestri said, “With Apple silicon and its powerful unified memory architecture, leading AI developers like Perplexity are choosing Mac as their preferred platform to build enterprise-grade AI assistants, power autonomous agents, and boost productivity.”
Wedbush’s Ives said Apple’s M&A strategy “will likely include companies in the AI space, and Perplexity strikes us as a potential candidate.”
Earlier this year, Apple announced an unexpected acquisition, acquiring secretive AI audio startup Q.ai. While the acquisition price wasn’t disclosed, reports suggest the deal valued the company at $2 billion—making it Apple’s second-largest acquisition ever, after the $3 billion purchase of Beats Electronics in 2014.
Apple’s other M&A deals are more “bolt-on” acquisitions, and the company often doesn’t even disclose the names of the smaller companies it acquires.
On last July’s earnings call, Cook said Apple had acquired “roughly seven companies” so far this year as of that time.
“They’re across a range of areas, and not all of them are AI-focused,” he said. “You can think of it as one every few weeks.”
Apple didn’t immediately respond to requests for comment.
Bank of America analyst Wamsi Mohan wrote in a Friday report that Apple’s cash strategy has left the company “structurally underleveraged from a financial perspective,” meaning it has the capacity to take on more debt to support this investment cycle. However, Mohan believes Apple’s spending will still be lower than that of other cloud hyperscale peers as it continues to pursue a hybrid AI strategy.