Apple's (AAPL) next CEO John Ternus has yet to reveal his strategy — but before he officially takes over, the company just made a noteworthy change. As the iPhone maker prepares to launch its long-awaited artificial intelligence capabilities later this year, a sudden shift in its financial strategy suggests the company may soon be on the verge of making a big acquisition.
Apple isn't known for being the first to embrace new technologies or spending generously on blockbuster acquisitions. While other big tech companies have rushed to spend hundreds of billions of dollars on capital spending, Apple has been on the sidelines — returning money to shareholders through stock buybacks and dividends.
However, Apple may soon join the game. During its second-quarter earnings call on Thursday, Apple said it would abandon its long-term goal of being net cash neutral.
Back in 2018, Apple began shrinking its massive cash hoard with the goal of keeping cash and debt levels comparable, but the company said it would evaluate the two metrics separately in the future. Chief Financial Officer Kevin Parekh said the decision will help the company "make better economic decisions on how to optimally leverage our debt and cash portfolio to support the business."
"We believe Apple's leadership change with a new CEO bodes well for future acquisitions, which is reassuring news for investors," Wedbush analyst Dan Ives said in an email.
Charles Reinhart, chief investment officer of the Johnson Investment Committee, said large technology companies have been using their balance sheets more aggressively to finance AI capital expenditures by reducing cash levels and raising debt. "Apple is obviously aware of the context," Reinhart said.
"We're also seeing tangible signs that AI demand is impacting Apple's business, including exceptionally strong demand for products like the Mac mini and Mac Studio, which are increasingly used for AI and agent workloads," Reinhart added. He believes this likely influenced Apple's decision to abandon its net cash neutral goal.
Apple has been increasing its internal AI investment, as evidenced by its 23.7% year-over-year increase in operating costs. Among them, research and development costs increased by 33.6%. But Apple's new cash management strategy may open the door to organic growth through acquisitions.
"This is a functional change and they are sending some kind of signal that we can only speculate on," Creative Strategies CEO and principal analyst Ben Bajarin posted on X. "More capital expenditures, more mergers and acquisitions, some things that are going to happen that are outside of Apple's historical norm."
Investors dissatisfied with Apple's slow progress in AI have long speculated that Apple could eventually become aggressively acquisitive. They worry that Apple will fall behind in AI innovation, and some believe that funding business transformation is a more efficient use of cash than buying back stock and paying dividends.
Apple's upcoming Siri overhaul will be powered by Google's Gemini AI model, which has become another point of contention. In a report in January, Radio Free Mobile founder Richard Windsor wrote that Apple must develop or acquire its own AI rather than relying on Google.
Cooperation with Gemini is only part of Apple's AI strategy. The company is also developing its own internal basic model to support on-device AI functions. Apple CEO Tim Cook said Thursday that balancing the two initiatives will require greater investment.
Rumors about a potential acquisition have been circulating for months. Last year, media reported that Apple was conducting internal discussions and considering acquiring AI startup Perplexity. Perplexity, known for its agency solutions, was mentioned during yesterday's earnings call. "With Apple silicon and its powerful unified memory architecture, leading AI developers like Perplexity are choosing Mac as their platform of choice to build enterprise-grade AI assistants that power autonomous agents and increase productivity," Parekh said.
Wedbush's Ives said Apple's M&A strategy "is likely to include companies in the AI space, and Perplexity looks to us as a potential candidate."
Apple already announced a surprise acquisition earlier this year, acquiring the mysterious AI audio startup Q.ai. Although the acquisition price was not disclosed, media reports stated that the transaction was valued at US$2 billion - which would make it the second largest acquisition in Apple's history, second only to the US$3 billion acquisition of Beats Electronics in 2014.
Apple's other M&A deals are more of a "fill-in" type of acquisition, with the company often not even announcing the names of the smaller companies it acquires.
During last July's earnings call, Cook said that to that point, Apple had "acquired about seven companies" this year.
“These companies come from all walks of life and are not all geared toward AI,” he said. "You can think of it as an acquisition every few weeks."
Apple did not immediately respond to a request for comment.
Bank of America analyst Vamsi Mohan wrote in a note on Friday that Apple's cash strategy has left the company "structurally underleveraged from a financial perspective," meaning it can afford to take on more debt to support this investment cycle. However, Mohan believes that as Apple continues to pursue a hybrid AI strategy, its spending will still be lower than other cloud hyperscale peers.