Apple stock has severely lagged the rest of the Mag 7. BofA says a rumored AI deal could turn it around.

Business Insider

6 hours ago

It's been a rough year for Apple stock, but there might be hope for a rebound with a rumored AI acquisition.
Apple has been the worst-performing Magnificent Seven stock in 2025, with shares down 20% year-to-date. On top of weak iPhone sales and tariff concerns, the company has lagged in the AI race among its mega-cap tech peers.
At Apple's WWDC earlier this month, the company failed to ease Wall Street's concerns about its Apple Intelligence product, with investors bemoaning the company's lack of a new killer app.
However, Apple executives could be eyeing a purchase of AI startup Perplexity, Bloomberg reported last week. While Perplexity has denied any M&A discussions and Apple has declined to comment,
Wall Street didn't ignore the buzz. Bank of America believes a deal could throw a lifeline to Apple's thus-lacking AI strategy and turn the stock around.
A potential stock rebound
If you can't make your own special AI sauce, buying it might be the next best option, according to BofA.
The bank said that, in the near-term, "we think any positive developments around AI initiatives would be positive for the stock that has largely been seen as an AI laggard."
Perplexity is an AI-powered search engine that responds to queries with cited responses, as opposed to a Google search that returns links. If completed, the acquisition would provide Apple with a more comprehensive AI offering instead of building one out in-house over years.
A strategic partnership, as opposed to an outright acquisition, could also help Apple to a lesser degree.
"Any such deal (we do not have any direct knowledge of the probability of such a deal) would likely be positive for shares that are currently in the penalty box given Apple is largely viewed as an AI laggard (deep Siri integration delayed and no cutting edge models)," Wamsi Mohan, technology research analyst at Bank of America, wrote.
An acquisition would give Apple access to Perplexity's search and answering capabilities, fresh AI talent, product synergies with Siri and other Apple offering, and exposure to non-Google search, Mohan highlighted.
Specifically, Perplexity could revitalize Siri's capabilities, which have struggled to keep up with developments in chatbots. Perplexity could also be integrated with not just Safari but also system-wide, helping Apple build AI into its services and hardware. All of these factors could fetch a higher valuation for Apple stock.
Most importantly, an acquisition would provide Apple with a clear AI strategy and prevent Perplexity from being acquired by a competitor.
Acquisition risks
Competition in the AI space is fierce, and Apple certainly isn't alone in pursuing a potential M&A or acquihire strategy. As Big Tech companies scramble to grab market share in the rapidly developing AI industry, growing through inorganic means is becoming more common.
Before Meta invested $14.3 billion into data annotation startup Scale AI, it also tried to acquire Perplexity and another AI startup called Safe Superintelligence.
But that's not to say that locking down a hot AI startup like Perplexity would solve all of Apple's problems.
Integrating a young startup into a larger, more-established company comes with its fair share of organizational challenges, and Mohan pointed to some of Apple's previous M&A ventures, such as Siri or Laserlike, as examples of acquisitions that experienced delays or roadblocks.
Apple will need to customize parts of Perplexity's platform to fit into its existing ecosystem and scale up to Apple's much larger user base. There are also legal risks: Perplexity is facing a copyright infringement case, which Apple would need to take on in the case of an acquisition.
Buying Perplexity could also jeopardize Apple's existing partnership with Google, creating a potential headwind to earnings.
Even with these concerns, Mohan is cautiously optimistic on the payoff of a potential acquisition: "From an investor's vantage point, a deal would offer a high-reward but high-risk proposition," he wrote.
"However, execution, in our view, is paramount: Apple would need to break from some of its old habits (siloed development, extreme secrecy, slow rollout) to fully capitalize on Perplexity's fast-paced innovation," Mohan added.
If completed, the acquisition would be Apple's biggest ever, as Perplexity is currently valued at $14 billion. It would also be a marked departure from the company's traditional free cash flow strategy of conducting stock buybacks and paying dividends.
Bank of America believes Apple could certainly afford to shell out for a deal of this size, as the company posted profits of $24.8 billion in Q1 2025. A Perplexity deal would signal to investors that Apple is willing to shift its capital allocation strategy to compete in the AI race.
"Given the transformative potential of AI, many analysts believe that not investing aggressively in AI is the bigger risk, even for a company as successful as Apple," Mohan wrote.