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Apple ( AAPL ) plans to increase spending on AI and data centers

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Apple ( AAPL ) open to acquiring larger AI companies, CEO Cook says

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Apple's ( AAPL ) AI strategy could include reworking Safari

By Stephen Nellis

SAN FRANCISCO, July 31 (Reuters) - Apple ( AAPL ) 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 ( AAPL ) has struggled to keep pace with rivals such as

Microsoft ( MSFT ) and Alphabet's Google, both of

which have attracted hundreds of millions of users to their

AI-powered chatbots and assistants. That growth has come at a

steep cost, however, with Google planning to spend $85 billion

over the next year and Microsoft ( MSFT ) on track to spend more than

$100 billion, mostly on data centers.

Apple ( AAPL ), in contrast, has leaned on outside data center

providers to handle some of its cloud computing work, and

despite a high-profile partnership with ChatGPT creator OpenAI

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 improvements until next year.

During a conference call after Apple's ( AAPL ) fiscal third-quarter

results, analysts noted that Apple ( AAPL ) 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."

Apple ( AAPL ) 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 ( AAPL ) is at a unique crossroads for its business.

The tens of billions of dollars per year it receives 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 with handset makers

to try to dislodge Google with an AI-powered browser that would

handle many search functions.

Apple ( AAPL ) executives have said in court they are considering

reshaping the firm's Safari browser with AI-powered search

functions, and Bloomberg News has reported that Apple ( AAPL ) executives

have discussed buying Perplexity, which Reuters has not

independently confirmed.

Apple ( AAPL ) 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 ( AAPL ) 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 ( AAPL ) 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."