Apple ramps AI spending amid pressure & internal struggles

Facing escalating competitive pressures and significant internal challenges, Apple is poised to substantially increase its investment in artificial intelligence projects. The tech giant also signals a more open approach to acquisitions, aiming to bolster its AI capabilities.

During Apple’s recent earnings call, CEO Tim Cook confirmed the company’s commitment to AI, stating it is investing “significantly more.” CFO Kevan Parekh further elaborated, attributing much of Apple’s current spending growth directly to these increased AI investments.

Internally, Apple is reallocating staff to focus on AI-centric initiatives. The company’s stated objective is to seamlessly integrate AI features across its platforms, prioritizing personal, privacy-focused, and user-friendly experiences. For its AI infrastructure, Apple is reportedly relying on servers powered by its own chips under the “Private Cloud Compute” moniker, rather than hardware from external vendors like Nvidia. Unlike cloud-native competitors such as Google or Microsoft, Apple employs a hybrid cloud model, leveraging partner solutions that are accounted for as operating expenses.

Regarding its growth strategy, Cook indicated Apple’s openness to acquisitions of any size, provided they align with its AI objectives. So far this year, Apple has acquired approximately seven companies, predominantly smaller firms, though not all are directly AI-related. This marks a potentially more aggressive stance than its historical pattern, with its largest acquisition to date being the $3 billion purchase of Beats Electronics in 2014.

Despite the announced ramp-up, Apple’s capital expenditures remain relatively conservative compared to other tech giants. The company invested $3.46 billion in the June quarter, whereas Google, Meta, and Microsoft each plan to spend tens of billions. Cook also downplayed concerns that emerging AI devices could displace the iPhone, describing them as complementary rather than competitive.

This strategic shift at Apple comes amidst reports of serious internal struggles. Technical setbacks and management dysfunctions are cited as reasons for delaying updated Siri features until 2026. Prior power struggles between John Giannandrea’s AI group and Craig Federighi’s software team reportedly hampered development, leading to a recent shakeup that placed Federighi in charge of Siri. The company has also contended with a significant shortage of computing power, prompting a move away from its long-standing strategy of exclusively processing data on devices.

These internal issues have reportedly triggered a notable talent exodus, with competitors like Meta reportedly luring away key AI researchers with multi-million dollar contracts. In response, Apple is reportedly considering a major strategic pivot for Siri, engaging in discussions with OpenAI and Anthropic about potentially integrating their large language models. Under Federighi’s leadership, Apple is said to be open to incorporating open-source models if they prove to outperform its own internal efforts. These new investments and a more flexible acquisition strategy appear to be Apple’s comprehensive response to address both strategic and personnel gaps in its AI ambitions.