#45: AI + Acquisitions
Prediction: Apple will buy Perplexity
Shortly after I published We’re Getting a New Browser, Perplexity launched Comet, an agentic web browser. Currently only available to Perplexity Max subscribers, the early feedback on Comet highlights its ability to go from data to insight to action across any data source online. I haven’t tried it out yet since I only have Perplexity Pro, but I will certainly give it a spin the moment Perplexity releases it to Pro subscribers. My hope is that agentic browsers become a massive productivity gain for both professional and personal endeavors.
Here's a bigger development, Perplexity is in talks with several smartphone makers to pre-install Comet on their devices (read: phones). No better way to gain adoption quickly like putting their app on something we pick up tens, if not hundreds, of times per day. Check your phone pickup count in Settings. It's unsettling.
LiveMint reports that Perplexity is focused on replacing Google Chrome as the default browser (and search engine) on Android devices and has already secured a pre-install spot on Motorola phones. Google is of course fighting to keep its top spot (as the default search browser); however, they are embroiled in antitrust issues surrounding whether this default position is considered “anti-competitive”.
Let’s talk about the elephant in the room: Apple.
Apple is the third most valuable company in the world (ranked by market capitalization) and its stock has been down 2% over the past year. Its price-to-earnings (P/E) ratio currently sits at 34, however its revenue has grown only by single-digit percentage points over the past few years. Apple doesn’t stack up well against NVIDIA, whose P/E ratio is around 55, but its revenue has doubled each year, over the past three years. Similar market capitalization, but wildly different growth trajectories.
The explosion of AI advancements comes at an interesting time as Google and Apple are under intense legal scrutiny for their partnership around Google Search’s position as Apple’s default search engine. The deal stands today as Apple lets Google Search take the default search engine position on all their devices (iPhone, iPad, etc.), and Google hands Apple a massive sum of money each year for the placement (a cool $20B). To clarify, Apple owns the browser experience through Safari (how the user accesses the internet), and Google Search is the default search engine in Safari (as per their agreement).
This deal is critical to both sides. About 20% of Apple’s services revenue reportedly comes from the Google deal. Services revenue over the years has helped Apple grow its market value as it diversifies itself away from one-time hardware sales (credit to Tim Cook, Apple CEO). Losing this nearly pure-profit deal would likely hit Apple’s stock price heavily. For Google, iPhone browsing data is critical for training their models and powering their ad business. Losing the default position on over 1 billion iPhones would present an existential blow to Google’s search business. Both parties need this deal.
Yet, Google’s Search business needs it more because Apple has other options.
As I mentioned before, Apple’s stock has middled over the past year, and the company is routinely criticized for its lack of innovative launches over the past decade. The last major hardware launch was AirPods in 2016 (yikes). Yet, they are still the third most valuable company in the world as they have an incredible product, and an even stronger brand.
If Apple decides to forgo the Google partnership (assuming they are forced to by anti-trust regulators), they need to make a bold move to offset the massive services revenue loss. It’s worth noting how far behind Apple is introducing AI applications on par with the market. From your LLM heavyweights (OpenAI, Perplexity, and Anthropic) to even Google with their Gemini LLM, the new age of Big Tech is way ahead of Apple’s Apple Intelligence (yep, they do call it “AI” for short). Siri still stinks and there are frequent reports of Apple shuffling executives and postponing AI efforts.
Since Tim Cook’s strength is as an operator, not as an innovator, Apple should lean into his strengths and acquire an LLM. I see no better option than Perplexity as the LLM of choice.
Microsoft and Amazon both staked a claim (through an investment) in OpenAI and Anthropic, respectively, so they’ve made their preferred LLM choice clear. On the other hand, Perplexity is primarily backed by venture capital firms and was recently valued at $18B (for reference, OpenAI raised its latest funding round at $300B).
Apple can scoop Perplexity up and the deal would barely dent their fortress balance sheet, even if the transaction price is at a significant premium to their latest valuation. Especially since Apple boasts over $50B in cash on hand and is valued around $3T.
This deal makes too much sense. Perplexity is first to market on an agentic browser, with hardware partnerships already in play. On the flip side, Apple continues to struggle to build momentum in its AI efforts compared to its peers.
See, each of the major LLM creators is likely to come up with their own version of an agentic browser, as OpenAI has already said they have one in development. These new portals to the internet will rely on a combination of personalized AI agents to execute tasks on your behalf, while at the same time, allowing you to browse the internet as you traditionally would. Imagine a more productive version of how humans interact with the web.
If you’re bullish on this acquisition, you’re betting that the new age of web browsers will be materially consequential to how we interact with the internet, and Apple won’t be able to catch up to the market on its own. Furthermore, you must believe that adoption of agentic browsers will be relatively smooth, and humans will ultimately prefer agentic browsers over the internet we grew up on. I see Perplexity’s Comet as the key driver, though I’d be remiss not to mention the sheer value of their core LLM and rapidly growing daily active users.
So yeah, Apple will buy Perplexity. In this scenario, Apple replaces Safari and Google Search with Perplexity’s Comet, which replaces Apple’s current browser and search engine set up. Apple leverages Perplexity’s sheer technical capabilities to supercharge all elements of their own AI efforts.
Disclosure: I don’t currently own $AAPL stock outright (I own it indirectly through ETFs). I offloaded my position recently due to concerns over their growth prospects. However, if Apple does buy Perplexity, I may hop back in as the potential synergies are too large to ignore. But worth noting, this is not investment advice.