Apple has reportedly engaged in internal discussions regarding the potential acquisition of AI startups Mistral AI and Perplexity. This move signals a possible shift in Apple's AI strategy as it faces increasing competition from tech giants like Google and Microsoft. While some executives, like Eddy Cue, are strong advocates for acquiring AI companies to bolster Apple's offerings, others, such as software chief Craig Federighi, believe that Apple can develop its own AI technology in-house.

Mistral AI, founded in 2023 and based in Paris, develops open-weight large language models (LLMs) designed to be smaller, faster, and easier to deploy than many competing systems. The company positions itself as a European alternative to American players like OpenAI and Anthropic. Perplexity, a U.S.-based AI company, has created an AI-powered search and answer engine that combines LLMs with real-time web indexing to provide cited, conversational responses. It aims to be a transparent alternative to traditional search engines like Google.

Acquiring either company would likely cost Apple billions of dollars. Historically, Apple has been hesitant to make such large purchases, with the Beats acquisition at $3 billion and Intel's wireless modem business at $1 billion being notable exceptions. However, CEO Tim Cook has signaled a willingness to consider larger AI-related acquisitions to accelerate Apple's AI roadmap.

The potential acquisitions could provide Apple with AI talent, recognized brands, and consumer products to strengthen its position in the AI race. Acquiring Mistral could give Apple immediate access to sophisticated language models to enhance virtual assistants like Siri, making them more conversational and context-aware. Integrating Perplexity's technology could power a native AI search experience in iOS or be integrated directly into Siri or a broader Apple-run search platform.

Alternatively, Apple has considered partnering with Perplexity, potentially integrating its technology into Safari and Siri. Apple's AI team has reportedly met with Perplexity multiple times and evaluated its technology, signaling interest in a closer relationship.

Several factors could be driving Apple's interest in acquiring AI startups. The company may be feeling pressure to catch up to competitors like Google and Microsoft, which have been aggressively integrating AI into their products and services. Acquiring AI talent and technology could help Apple accelerate its AI development and avoid falling further behind.

Furthermore, a potential federal ruling that ends the $20 billion deal between Apple and Alphabet, which makes Google the default search engine on Apple devices, could compel Apple to acquire an AI-powered search startup to fill that gap.

Despite the potential benefits, there are also challenges and uncertainties associated with these potential acquisitions. Integrating new AI technologies and teams into Apple's existing ecosystem could be complex. Financial considerations and regulatory hurdles could also impact the outcome. Some executives within Apple believe that the company should focus on building its own AI technology rather than acquiring external companies.

For now, Apple is reportedly planning to continue its strategy of focusing on smaller deals in AI. Whether the discussions with Mistral and Perplexity will lead to an acquisition remains to be seen. However, the fact that these discussions are taking place suggests that Apple is serious about boosting its AI capabilities and is willing to consider significant changes to its traditional acquisition strategy.