'Out of your comfort zone': how could Musk's startup help Apple's AI problems?

Apple could use artificial intelligence startup Ilon Musk's xAI in the next generation iPhone and other products, Melius Research believes. The company has previously considered connecting OpenAI's ChatGPT or Google's Gemini neural networks to its Siri voice assistant, and even buying startup Perplexity. However, Apple still hasn't decided anything and has fallen behind its competitors in implementing AI. At the same time, the company has no hope of creating its own artificial intelligence, Melius notes.

Elon Musk's xAI could be the ally Apple needs to bridge the technology gap in artificial intelligence, according to analyst Ben Reitzes of Melius.

"Apple could give xAI the access to its user base needed to overtake OpenAI [creator of ChatGPT] in exchange for all the benefits of owning its own LLM [large language model] - but without the capital outlay," the analyst wrote July 21 in a note that is cited by Barron's.

The weak point of such a deal could be Apple's dependence on an external and yet controversial partner: xAI's Grok chatbot recently published anti-Semitic posts, the publication writes. xAI deleted them, saying that the chatbot's incorrect behavior was the result of unauthorized changes to the system.

Apple did not respond to Barron's request for comment on its AI plans.

Apple has repeatedly delayed promised updates to Siri with support for artificial intelligence, a role that has been touted by ChatGPT from OpenAI, Gemini from Google, Claude from Anthropic, and even AI from Alibaba Group for the Chinese market. But the lack of a solution has undermined hopes that such an upgrade could bring back growth in iPhone revenue, which has stagnated since reaching $205 billion in fiscal 2022, Barrons notes. The prospect of Apple releasing an iPhone with AI features on its own is becoming less and less likely. One of the company's leading AI researchers, Ruoming Pan, who led a team focused on the underlying machine learning model, recently left the company. He has moved to Meta Platforms.

Apple's operating system is closed, and the company is reluctant to give third-party developers access to user data, citing privacy concerns. Apple's strategy of having tight control over its platforms could incline it to buy an AI vendor. Analysts often cite Perplexity as a potential target for such a deal. Buying Perplexity could cost Apple more than $20 billion given the startup's latest valuation of $18 billion, but could still support the stock's upside, Reitzes said. He estimates that if 100 million Apple users buy a Perplexity Pro Tier subscription for $200 a year, it will fully offset potential losses from Google stopping paying $20 billion a year for default search in its Safari browser.

A partnership involving Apple's share of subscriptions to xAI products could also offset the potential loss of revenue from its agreement with Google, Melius writes

"Tim Cook and his team are likely to be rewarded by the market for their courage and determination to accelerate progress in AI - even if they have to step out of their comfort zone," says Reitzes.

The analyst maintains a "buy" rating on Apple stock with a target price of $240, up 13% from the current value.

Apple should consider replacing CEO Tim Cook with a new candidate, as the iPhone maker's problems with artificial intelligence pose significant risks to the company. This was reported by Walter Paisek and Joe Galone, analysts at research firm LightShed Partners, in a July 9 note.

"An AI misstep could radically alter Apple's long-term trajectory and its ability to continue to grow," the analysts argue. They caution that at a time when artificial intelligence is "reshaping industries around the world," Apple "risks being among those who cannot withstand this pressure" unless it takes drastic action.

This article was AI-translated and verified by a human editor