Apple is exploring acquisitions of AI chip startups to address performance issues with its in-house server chips, according to a report by The Information. The iPhone maker's current AI servers use internally designed M2 Ultra chips for some workloads, but those processors have struggled with larger AI models. Apple was unable to run Google's Gemini models efficiently on its own server infrastructure during development of the revamped Siri, forcing the company to rely on Nvidia GPUs hosted in Google Cloud for more demanding AI workloads. Apple shares were up more than 4% in Wednesday morning's trade.
Apple Approaches Bankers and Chip Startups for Potential Acquisitions
Apple has held discussions with bankers about potential chip acquisitions in recent months and has approached semiconductor startups to gauge their interest in a sale, according to the report. The company's M2 Ultra chips have struggled with larger AI models, and Apple was unable to run Google's Gemini models efficiently on its own server infrastructure during development of the revamped Siri. As a result, Apple had to rely on Nvidia GPUs hosted in Google Cloud for more demanding AI workloads. The report noted that a future AI server chip, code-named Baltra, has been delayed. Acquiring chip startups could help Apple accelerate development of more powerful server processors as it looks to reduce dependence on Nvidia.
Apple Acquires Q.ai for $2 Billion, Ends Net Cash Neutral Policy
Earlier this year, Apple agreed to acquire Israeli startup Q.ai for $2 billion, according to the report, marking its second-largest acquisition after the $3 billion purchase of Beats Electronics in 2014. During the company's second-quarter earnings call, Apple CFO Kevan Parekh said Apple was moving away from its long-standing policy of remaining "net cash neutral." "As we move ahead, we are no longer providing net cash neutral as a formal target, and we will independently evaluate cash and debt," Parekh said. The report said the deal could signal a greater willingness to pursue larger acquisitions as competition in AI intensifies.
Apple Develops M5 Ultra and M7 Ultra Server Chips, Expands Broadcom Partnership
Apple is working on a server chip based on its upcoming M5 Ultra processor, according to a Bloomberg report last week. A more advanced M7 Ultra-based chip is expected to deliver a significant performance leap, potentially rivaling Nvidia's current-generation Blackwell chip, the report added. Apple has been working with Broadcom on AI server chips. Broadcom disclosed last week that the companies had expanded their long-standing technology collaboration through 2031. Apple then announced that the agreement is expected to exceed $30 billion, leading to the production of more than 15 billion U.S.-made chips.
Apple stock is up 21% year-to-date and 57% over the past 12 months. The S&P 500 ETF Trust is up 21% over the past 12 months, while the Invesco QQQ Trust is up 28%. The Vanguard Total Stock Market Index Fund ETF is up 21% during this period, while the Vanguard Growth Index Fund ETF is up 18%.
FAQ
Why is Apple exploring AI chip startup acquisitions?
Apple is exploring acquisitions of AI chip startups because its current M2 Ultra chips have struggled with larger AI models. The company was unable to run Google's Gemini models efficiently on its own server infrastructure during development of the revamped Siri, forcing reliance on Nvidia GPUs hosted in Google Cloud.
What is Apple's largest acquisition to date?
Apple's largest acquisition to date is the $3 billion purchase of Beats Electronics in 2014. Earlier this year, Apple agreed to acquire Israeli startup Q.ai for $2 billion, marking its second-largest acquisition.
What did Apple announce about its partnership with Broadcom?
Apple announced that its expanded technology collaboration with Broadcom through 2031 is expected to exceed $30 billion, leading to the production of more than 15 billion U.S.-made chips. Broadcom disclosed last week that the companies had expanded their long-standing partnership.
