Apple wants to buy startups. Here's what Tim Cook should have on his shopping list, according to bankers, VCs, and analysts.

Apple's Tim Cook is pitching a bunch of new AI-powered services. Are they enough to get you to buy a new iPhone?Jeff Chiu/APApple CEO Tim Cook set off a guessing game when he said he was on the hunt for deals of all sizes.With about $133 billion of cash, Apple can afford to spend big, but it has preferred to be thrifty so far.BI asked sources what companies should be on Apple's shopping list.Apple, which has historically been the quietest of the Big Tech companies when it comes to dealmaking, set off a guessing game in Silicon Valley last week when CEO Tim Cook said he was on the hunt for deals."We're very open to M&A that accelerates our road map," Cook said on the company's earnings call, referring to mergers and acquisitions. "We basically ask ourselves whether a company can help us accelerate a road map. If they do, then we're interested."Apple's stock is down about 10% this year, partly out of investor concern that it has fallen behind in the AI race."There's a lot of pressure on Apple's leadership to do something," said Gil Luria, head of technology research at DA Davidson. "That's a lot of what we were hearing on the earnings call, is the leadership team acknowledging, we understand you want us to do something, we hear you, and if that means more investment or if that means making an acquisition, those are both things that we are looking into."With about $133 billion of cash on hand, Apple can afford to spend big, but it has generally preferred to be thrifty. Cook hinted that strategy could change, however."We are not stuck on a certain size company," he said.Cook said Apple has bought seven smaller companies this year from "all walks of life" and was doing a deal once every few weeks. Its last sizable deal was over a decade ago, when it bought Beats Electronics for $3 billion in 2014.What would be an AI version of this now? One tech banker who asked to remain anonymous mentioned AI-powered media-creation startups such as Runway AI, Eleven Labs, and Pika AI.Apple's core is all about consumer experiences, creativity, and media, so it would be better for the company to focus acquisitions on AI startups that help it make progress in these areas, the banker said.That would probably rule out startups such as Anthropic and Cohere, which focus more on enterprise users.The obvious company here is OpenAI, which currently ranks at the top of Apple's App Store. This banker said that Apple should have bought OpenAI, but with the startup's valuation potentially headed toward $500 billion, that ship has very likely sailed.There are also regulatory concerns if a company is too big, according to Luria."For most intents and purposes, large M&A right now is off limits for these companies," Luria said, pointing to Meta's Scale AI investment as a blueprint for how Apple might proceed with a partnership and investment rather than an acquisition.So, what should be on Apple's shopping list? BI asked these sources:Jim McVeigh, a longtime investment banker who is the founder and CEO of Cyndx, an AI-powered platform for private capital marketsGil Luria, head of technology research at DA DavidsonDan Ives, managing director and equity research analyst at Wedbush SecuritiesJordan Thibodeau, former M&A at Google and co-host of the SVIC podcastSarah Guo, founder and managing partner of ConvictionPerplexityPerplexity CEO Aravind Srinivas said some top talent will have a lot of "leverage."Kimberly White/Getty Images for TechCrunchWhat it does: AI-powered search engineWho thinks this is a good idea: Jim McVeigh, Gil Luria, Jordan Thibodeau, and Dan IvesWhy it makes sense, according to Luria:Perplexity is one of the largest AI companies still without a major Big Tech sponsor. (Nvidia and Jeff Bezos are existing investors in Perplexity, though the sizes of their stakes are unclear.)The Department of Justice's ongoing antitrust battle with Google could see a federal judge ruling that Google terminate its deal as Apple's default search engine. With that potential ruling on the horizon, "it became obvious that if Apple was going to give a choice to consumers, that Perplexity would probably be pretty high on the list of choices," Luria said.Why it makes sense, according to McVeigh:Integrating Perplexity's GenAI into the Apple ecosystem could turbocharge Siri and Spotlight, vastly improving their natural‐language capabilities and contextual search.It would help Apple compete with Google and Microsoft, who are embedding advanced AI into their platforms.Perplexity has proven market traction and product‐market fit to provide an immediate lift for Apple.Why it makes sense, according to Ives:Ives called Perplexity a "no-brainer deal" for Apple to supercharge its AI capabilities and attempt to catch up to its Big Tech peers. "Apple is watching the AI revolution go by them, and it's been a treadmill situation. They're playing from way behind. I think investors want to see them rip the Band-Aid off and do a deal, do big partnerships," he told BI.He said the regulatory scrutiny Apple could face on an acquisition like Perplexity shouldn't deter the company from pursuing a deal with Perplexity in some form. "For Apple, time is ticking," he said.Why it makes sense, according to Thibodeau:"This feels like the obvious pick," Thibodeau said. "Their business is cornered by Google and OpenAI so I think [cofounder and CEO Aravind Srinivas] will bend the knee and go for the acquisition, no shame in it. Growth isn't as fast as it should be, so it's going to be an uphill battle and I don't think VCs are going to fund that forever.""Apple has deep enough pockets to give Aravind the money he needs to train his own foundational models, so Apple is not beholden to using OpenAI to power Siri intelligence (oxymoron) or Perplexity search," Thibodeau said.Why it doesn't make sense, according to Luria:It's unclear whether a Perplexity acquisition would clear regulatory hurdles in the face of antitrust concerns.Why it doesn't make sense, according to McVeigh:An acquisition would be expensive given Perplexity's reported $18 billion valuation.There could be a cultural mismatch integrating Apple with a fast-growing, VC‐driven startup."We're humbled that so many of the best phone makers in the world are interested in Perplexity, but aside from our own acquisitions, we are unaware of any M&A discussions that involve Perplexity," Perplexity's head of communication Jesse Dwyer told BI.Mistral AIMistral AI cofounder and CEO Arthur Mensch.LUDOVIC MARIN/POOL/AFP via Getty ImagesWhat it does: Open-source LLM builder, based in EuropeWho thinks this is a good idea: Gil Luria and Ben ThompsonWhy it makes sense, according to Luria:The top tier of frontier model companies, including OpenAI, Anthropic, xAI, and Google, are "running away with it" in the AI race.Those companies are probably off-limits at this point for a large Apple investment, given the scale they've reached and their existing Big Tech sponsorships — OpenAI has Microsoft, Anthropic has Amazon and Google, and xAI has Elon Musk. Apple should then turn to "second-tier" foundation model startups like Mistral.Mistral has failed to compete at the highest level with other foundation models because it lacks the resources, namely, the massive amounts of GPUs required for large-scale AI development, accessible to the likes of OpenAI and Anthropic.A deal with Apple could help Mistral close that resource gap while granting Apple access to Mistral's team and LLMs."Apple may be in a position to buy a lab that has a talented team but didn't have the resources, and by giving them the resources — and by resources, I mean large GPU clusters — maybe they can make that into an attractive proposition," Luria said.Why it makes sense, according to Thompson:"Mistral is seeking to raise at (only) a $10 billion valuation; that's less than half of what Apple spent in share buybacks last quarter alone," Thompson wrote on his popular tech blog. "If Apple were ever going to make an acquisition in the AI space, now is the time, and Mistral is the company."Why it doesn't make sense, according to Luria:Apple could pursue another company in this second-tier frontier model territory aside from Mistral.Mistral is taking steps independently to address Luria's critiques, including by working with Nvidia to increase its GPU capacity.Its CEO said in January that Mistral "is not for sale" and would instead look to IPO in the future.Mistral didn't respond to requests for comment for this story.OomiiOomii's website.OomiiWhat it does: Develops retinal scan display technology for augmented realityWho thinks this is a good idea: Jim McVeighWhy it makes sense, according to McVeigh:Oomii's VR technology could be a big boost to the Vision Pro, and also unlock new features for the iPhone and iPad.Acquiring Oomii would provide a good defense against Meta, which has been investing billions in VR.Oomii has no VC funding and a simple cap table, which makes it easier to acquire.Why it doesn't make sense, according to McVeigh:Oomii's small scale, potential lack of commercial traction, and limited market validation may give Apple pause.Oomii didn't respond to requests for comment for this story.SynthpopSynthpop's website.SynthpopWhat it does: AI for healthcare administrationWho thinks this is a good idea: Jim McVeighWhy it makes sense, according to McVeigh:The deal could substantially bolster Apple's HealthKit strategy.The company has a strong focus on privacy, security, and a seamless user experience — all hallmarks of Apple.The founders have experience in AI and healthcare.The acquisition cost would be low.Synthpop has attractive healthcare automation intellectual property that works with US insurance and hospital networks.Why it doesn't make sense, according to McVeigh:The company is an early-stage startup and mostly focused on the US.It may need capital investment from Apple to expand globally and would have to navigate other regulatory environments outside the US.Synthpop didn't respond to requests for comment for this story.Thinking Machines LabMira Murati, Chief Technology Officer of OpenAI, speaks during The Wall Street Journal's WSJ Tech Live Conference in Laguna Beach, California.PATRICK T. FALLON via Getty ImagesWhat it does: AI lab founded by ex-OpenAI chief technology officer, Mira MuratiWho thinks this is a good idea: Sarah Guo (who is an investor in Thinking Machines Lab)Why it makes sense, according to Guo:"It would be game-changing for Apple to partner with an independent leading AI lab like Thinking Machines," said Guo. "They have massive threats and opportunities across the Apple experience."Radically improving Siri experiences with Apple's mobile data, using memory and personalization, is a huge opportunity, even if Siri has failed to keep up with the breakneck pace of AI capabilities to date, Guo said, while stressing that Apple should partner with Thinking Machines, rather than buy the startup.Why it doesn't make sense:Murati has already raised $2 billion at a $20 billion valuation and seems determined to continue as an independent company.Read the original article on Business Insider

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