Apple’s $100B Question: Buy back stock… or buy back its innovation edge?

Apple’s May announcement of its huge $100B stock buyback can be seen as a vote of confidence, yes… but also a signal: “We don’t see anywhere better to put this money right now.”

Meanwhile, AI is rewriting the rules of search. Perplexity sits at a $20B+ valuation (a bit ridiculous at 180x revenue multiple, but hey, market rules, right?). Only 22M users, but tech that could supercharge Siri into a true AI companion (instead of the current plan of renting Gemini to make Siri smarter).

The math writes itself: 1.5B iPhone users × $40 ARPU = $60B annual search revenue opportunity. That’s 3x the size of the lost Google default search deal, and a way to reclaim relevance in the AI race.

So here’s the thought: instead of throwing $100B at shareholders to signal “steady as she goes,” maybe Apple should spend a fraction of that to signal “the future is ours.”

Because sometimes the boldest buyback… is buying back your seat at the innovation table.

Where’s this coming from?

Two weeks back Perplexity made a small splash with its bold attempt to acquire Chrome. People mulled, pondered and moved on. Fact of the matter is Perplexity is nowhere in the running in a hypothetical Chrome acquisition. In fact, chances are good that Chrome will stay exactly where it is, with Google.

But let’s talk about where Perplexity is headed and where it could go from here.

Even though Perplexity has built a great platform they are a long way from cashing in. Despite the wild valuation at $20 billion, they have a little bit over 22 million users globally (that is a 0.5% market-share of Search). They need users, about 20X more than they currently have, and they need it yesterday. Because every day the gap between them and OpenAI’s 700 million strong userbase is widening. And Perplexity may have realized they have no shot at growing users at that scale organically.

But there is another way they can get 1.5 billion users instantaneously. With Apple and iPhone.

Why Apple?

Back in December 2024, Apple SVP of Services, Eddy Cue, rejected assertions raised in the Google antitrust trial that the elimination of the default search deal would lead Apple to develop its own search engine. His reasons were threefold-

·       It would be too costly and divert resources from other growth areas Apple is focused on

·       Search is changing too rapidly due to AI, making it too risky

·       Maintaining a search engine would require standing up a targeted paid search business which is not Apple’s competitive advantage and not aligned with their privacy commitments

Whether Mr. Cue likes it or not, Apple’s iPhone default search deal with Google is doomed, even if nothing else comes out of the Google antitrust deal. Apple therefore stands to lose up to $20 billion a year it receives from Google under this deal. This is a direct and massive 20% hit to Apple’s bottom-line that it can ill-afford to ignore, even at the cost of diverting resources from other growth endeavors.

Secondly, Apple can also not afford to ignore AI-driven seismic changes within Search. AI-enabled search has already changed consumer expectations from a laundry-list of search responses to summarized conversational responses that preempt the need for searching beyond the first search page. This is a revolution and not an evolution, Apple would want their flagship product front and center in this.

And last, and most immediately relevant, and also as stated in the first reason above, Apple needs a plan to replace $20 billion in lost profits from the impending demise of the default search deal with Google. The most near-liquid asset Apple has is it’s over 2 billion users. Even if only counting the 1.5 billion users on iPhone and using an average revenue per user for paid search at $40, that is a whopping $60 billion a year in revenues that easily replaces the $20 billion in default search deal lost profits. I am sure with those numbers, Apple can easily justify building or acquiring a full paid search ad setup.

Interestingly, despite Mr. Cue’s forceful rejection of any possibility of Apple developing a search engine, they have apparently been quietly scaling a venture called Answers, Knowledge, and Information (AKI) to develop an AI-powered “answer engine”, according to Bloomberg. And separately, there are rumors of Apple contemplating using Gemini to make Siri smarter. Apple- I am perplexed(😁)- what exactly is the plan here? It is a little late in the game to be meandering without a concerted strategy in a space as vital as AI.

Perplexity is Apple’s shot to propel ahead in AI

Perplexity’s Retrieval-augmented generation (RAG) that synthesizes contextual, conversational responses and sharp focus on transparency fits in nicely with iPhone’s core design principles of simplicity and trust. Perplexity would also bring in a topnotch team that is already pushing boundaries in Gen AI, helping Apple leapfrog ahead in a space where it is seen as a late entrant. Think of what this can do for a Siri-transformation to a true AI knowledge companion that is immersive, multi-modal and context-aware.

The Economics of a $20+ Billion Deal

At upwards of $20 billion, Perplexity is trading at a crazy multiple to its $100 million purported revenues. One that would be tough to justify purely on transactional ROI, given market dynamics that will split the future of AI-enabled search between the incumbent (Google) and the upstart (guess who that is!).

But this deal easily makes sense as a strategic play given the unique circumstances above in which Apple finds itself. Apple would be paying for future growth, talent, and strategic leverage rather than immediate financial return.

And Apple clearly has enough cash at hand to swing this deal outright. This obviously will need Apple to scale its current advertising infrastructure, which would likely need another acquisition, and there are a few that come to mind.

That’s a topic for another day!

(Note- these are just late summer-haze induced musings, I have no financial interest in either companies, take everything said here with the customary pinch of salt!)