CEO Tim Cook says Apple ready to open its wallet to catch up in AI

SAN FRANCISCO: Apple CEO Tim Cook signaled on Thursday the iPhone maker was ready to spend more to catch up to rivals in artificial intelligence by building more data centers or buying a larger player in the segment, a departure from a long practice of fiscal frugality.

Apple has struggled to keep pace with rivals such as Microsoft open new tab and Alphabet's google (GOOGL.O) open new tab, both of which have attracted hundreds of millions of users to their AI-powered chat bots and assistants. That growth has come at a steep cost, however, with Google planning to spend $85 billion over the next year and Microsoft on track to spend more than $100 billion, mostly on data centers.

Apple, in contrast, has leaned on outside data center providers to handle some of its cloud computing work, and despite a high-profile partnership with Chat GPT creator Open AI for certain iPhone features, has tried to grow much of its AI technology in-house, including improvements to its Siri virtual assistant. The results have been rocky, with the company delaying its Siri improvement until next year.

During a conference call after Apple's fiscal third-quarter results, analysts noted that Apple has historically not done large deals and asked whether it might take a different approach to pursue its AI ambitions. CEO Cook responded that the company had already acquired seven smaller companies this year and is open to buying larger ones.

"We're very open to M&A that accelerates our roadmap. We are not stuck on a certain size company, although the ones that we have acquired thus far this year are small in nature," Cook said. "We basically ask ourselves whether a company can help us accelerate a roadmap, and if they do, then we're interested."

Shares of the company were up 1.7% in premarket trading on Friday.

Apple has tended to buy smaller firms with highly specialized technical teams to build out specific products. Its largest deal ever was its purchase of Beats Electronics for $3 billion in 2014, followed by a $1 billion deal to buy a modem chip business from Intel.

But now Apple is at a unique crossroads for its business. The tens of billions of dollars per year it receive from google as payment to be the default search engine on iPhones could be undone by U.S. courts in Google's antitrust trial, while startups like Perplexity are in discussions to try to dislodge Google with an AI-powered browser that would handle many search functions.

Apple executives have said in court they are considering reshaping the firm's Safari with AI-powered search functions, and Bloomberg News has reported that Apple executives have discussed buying perplexity, which Reuters has not independently confirmed.

Apple also said on Thursday it plans to spend more on data centers, an area where it typically spends only a few billion dollars per year. Apple is currently using its own chip designs to handle AI requests with privacy controls that are compatible with the privacy features on its devices.

Kevan Parekh, Apple's chief financial officer, did not give specific spending targets but said outlays would rise.

"It's not going to be exponential growth, but it is going to grow substantially," Parekh said during the conference call.

"A lot of that's a function of the investments we're making in AI."