Apple Faces AI Gap, Needs Acquisition: Analyst Dan Ives

Dan Ives, Head of Tech Research at Wedbush, believes Apple is lagging behind in AI development and needs to make an acquisition to catch up. Ives says Apple is so far behind that it's almost a necessity for them to make a deal to stay competitive.

Title: Apple's AI Acquisition: A Necessary Move to Stay Competitive

Dan Ives, Head of Tech Research at Wedbush, recently highlighted that Apple is lagging behind in AI development and needs to make an acquisition to catch up. According to Ives, Apple's current pace is insufficient to remain competitive in the rapidly evolving AI landscape [1].

Since Apple's latest earnings call, discussions about a potential acquisition of Perplexity have subsided. The company's recent struggles with retaining AI talent and the need for fresh, product-ready technology have intensified the urgency for a strategic acquisition [1]. While Apple has made numerous AI acquisitions in the past, its progress has been slower compared to its rivals, such as Google, Meta, Microsoft, and Amazon [1].

Ives' concern is echoed by the fact that Apple's own AI ambitions and promises have not been met. For instance, while OpenAI and Anthropic have been continuously improving their AI tools, Apple's Writing Tools, announced a year ago, have made minimal progress [1]. Furthermore, the AI Siri revamp has faced several documented setbacks, indicating a need for more advanced and proven technology [1].

Given these challenges, Apple needs to focus on acquiring a company that can provide an infusion of product-ready technology. Mistral, a French startup valued at $10 billion, stands out as a potential candidate. Mistral offers a wide range of foundation models, large and small models, open-source products, and developer tools, aligning well with Apple's needs [1]. Additionally, Mistral's focus on privacy and responsible AI development is consistent with Apple's philosophy [1].

Another option is Aleph Alpha, a Germany-based company that has raised nearly $1 billion in funding. However, Aleph Alpha's focus on enterprise and public-sector AI rather than consumer-facing AI might pose a challenge for Apple in retaining the team's motivation and aligning with its consumer tech goals [1].

Other companies like Ai2, Kimi, and Cohere are also doing impressive work in AI, but their smaller scale and focus on different sectors might not provide the immediate impact Apple needs [1]. Newer companies like Thinking Machines Lab and Safe Superintelligence, valued at $12 billion and $30 billion respectively, are promising but lack proven products and roadmaps [1].

Given the skyrocketing valuations of frontier AI labs, Apple's options are narrowing. Mistral appears to be the best fit, offering a comprehensive suite of AI technologies and a strong alignment with Apple's values [1]. An acquisition of Mistral could help Apple course-correct and stay competitive in the AI race.

In addition to AI acquisitions, Apple's Services segment continues to be a significant growth engine. In Q3-FY25, Services revenue reached $27.4 billion with a 13% YoY increase, outpacing the company's overall revenue growth of 9.6%. The Services segment, which includes the App Store, Apple Music, iCloud, and Apple TV+, led 25.6% of Apple's trailing 12-month (TTM) revenue of $313.7 billion [2]. The segment's high gross margins and recurring revenue model provide financial stability and resilience against macroeconomic headwinds.

As Apple looks to expand its AI capabilities, it must also ensure that it retains its AI talent and aligns its acquisitions with its long-term strategic goals. An acquisition of Mistral or a similar company could be a critical step in helping Apple catch up and stay competitive in the AI landscape.

References
[1] https://9to5mac.com/2025/08/12/what-are-apples-options-for-an-ai-acquisition-beyond-perplexity/
[2] https://seekingalpha.com/article/4813666-apples-hidden-growth-engine-surges