Apple Goes Shopping For AI Chip Startups Amid Struggles With Performance Of In-House Server Chips: Report

• Apple's current AI servers use internally designed M2 Ultra chips for some workloads, but those processors have struggled with larger AI models.
• According to the report, Apple was unable to run Google's Gemini models efficiently on its own server infrastructure during the development of the revamped Siri.
• As a result, Apple had to rely on Nvidia GPUs hosted in Google Cloud for more demanding AI workloads.

Apple Inc. (AAPL) is said to be exploring acquisitions of AI chip startups as it looks to strengthen its in-house server chip capabilities,

According to a report by The Information, this comes amid ongoing struggles that Apple is facing with the performance of its in-house chips powering the iPhone maker’s AI infrastructure.

Apple shares were up more than 4% in Wednesday morning’s trade. AAPL was among the top trending tickers on Stocktwits at the time of writing.

AAPL Approached Bankers, Chip Startups, Says Report

Apple has held discussions with bankers about potential chip acquisitions in recent months and has also approached semiconductor startups to gauge their interest in a sale, according to the report.

Apple's current AI servers use internally designed M2 Ultra chips for some workloads, but those processors have struggled with larger AI models. According to the report, Apple was unable to run Google's Gemini models efficiently on its own server infrastructure during the development of the revamped Siri.

As a result, Apple had to rely on Nvidia Corp. (NVDA) GPUs hosted in Google Cloud for more demanding AI workloads. The report noted that the company had hoped a future AI server chip, code-named Baltra, would improve performance, but the project has been delayed.

Acquiring chip startups could help Apple accelerate the development of more powerful server processors as it looks to reduce its dependence on Nvidia and compete more effectively in AI infrastructure.

AAPL Signals A Bigger Appetite For Deals

The report adds that Apple has begun showing a bigger appetite for larger transactions this year, including as it looks to bolster its AI capabilities.

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. The report said the deal could signal a greater willingness to pursue larger acquisitions as competition in AI intensifies.

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,” which could give the iPhone maker greater flexibility to deploy its sizable cash reserves on strategic acquisitions.

“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.

AAPL Maps Out Next Wave Of AI Server Chips

Apple is continuing to invest in more powerful in-house AI server chips despite exploring acquisitions.

According to a Bloomberg report last week, the company is working on a server chip based on its upcoming M5 Ultra processor. 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 also been working with Broadcom Inc. (AVGO) 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.

What Retail Traders Think Of AAPL Stock

Retail sentiment on Stocktwits around Apple trended in ‘bullish’ territory at the time of writing.

AAPL stock is up 21% year-to-date and 57% over the past 12 months. The S&P 500 ETF Trust (SPY) is up 21% over the past 12 months, while the Invesco QQQ Trust (QQQ) is up 28%.

The Vanguard Total Stock Market Index Fund ETF (VTI) is up 21% during this period, while the Vanguard Growth Index Fund ETF (VUG) is up 18%.

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