• Wedbush Securities’ Dan Ives said Apple needs to acquire the $14 billion startup Perplexity in order to catch up and ultimately prevail in the AI race. While the company has an advantage because of the popularity of its iPhone and other iOS devices, it ultimately needs to look outside instead of building out an AI product in-house, Ives wrote in a Wednesday note. 

Apple is falling behind in the AI race, and the only way it can catch up is by buying the AI startup Perplexity, according to a top analyst.

Dan Ives of Wedbush Securities said it’s clear Apple is incapable of producing its own AI in-house, despite a company culture that strives to build superior products internally. In recent days, some of Apple’s top AI talent has also been poached by increasingly aggressive AI talent recruiter Meta, Bloomberg reported.

Meanwhile, competitors are increasingly outdoing the company.

“Apple is at a highway rest stop on a bench watching this 4th Industrial Revolution race go by at 100 miles an hour,” wrote Ives in a Wednesday note.

Apple did not immediately respond to Fortune‘s request for comment.

Ives was more hopeful about Apple’s AI prospects in January, despite writing that the company was facing a “fork in the road” year on the technology. At the time, he highlighted Apple’s clearest advantage in the AI arms race: its existing base of 1.5 billion iPhones and 2.3 billion iOS devices used by people around the world. 

In his Wednesday note, Ives struck a more apprehensive tone, adding Apple still retained the advantage of its widespread devices and could eventually win the AI race, but that its “window is narrowing.” Apple’s most recent WWDC, its annual event for showcasing new tech, also “was a snoozer,” Ives wrote, and barely mentioned AI.

“Apple is way too behind and does not have the AI technology to compete. The clock has struck 12, they need to acquire Perplexity or risk getting further behind,” Ives told Fortune in an email.

Even if Apple has to pay around double what it is currently worth, it should acquire Perplexity, he wrote. The San Francisco-based startup, reportedly worth $14 billion, has made strides among AI enthusiasts for citing links to articles and other information when its AI responds to queries. Perplexity on Tuesday also launched Comet, an AI-based web browser, for select subscribers, in its latest effort to compete with tech giants Google and Microsoft. 

Yet, Tomasz Tunguz, the founder of Theory Ventures, which invests in early-stage enterprise AI startups, said acquiring Perplexity would come with myriad privacy considerations for Apple. The company is used to providing end-to-end encryption for products like iMessage and FaceTime, and would need to find a solution for how Perplexity would run, either locally or on a secure cloud architecture.

“They would need to have a lot of confidence they could build an architecture from end to end that had that privacy component,” Tunguz told Fortune.

Kevin Novak, founder and managing partner of early-stage AI investment firm Rackhouse Ventures, said it’s unclear whether a large acquisition would work for Apple. The company has tried to maintain the pro-building ethos of Steve Jobs for much of its history, and has been shy to acquire. Among its largest acquisitions was its $3 billion purchase of Beats electronics in 2014.

“This would be challenging for any company, but especially given Apple’s sort-of corporate ethos around perfectionism, may be especially challenging for Apple,” Novak told Fortune.

Still, Ives, for his part, said he believes Perplexity could be a natural fit for Apple and could especially help level up Siri to make it many people’s most frequent exposure to AI. 

“If Apple acquires Perplexity, the combined forces of Cupertino with Perplexity would be a game changer on the AI front and rival ChatGPT given the scale and scope of Apple’s ecosystem,” wrote Ives in the note.

This story was originally featured on Fortune.com

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• A change to Grok’s internal instructions, or system prompt, is leading users to accuse Elon Musk’s AI of a renewed rightward tilt. The new instructions tell it to assume some media information is biased. The chatbot recently responded to a user saying electing more Democrats would be “detrimental” and cited the conservative Heritage Foundation in its response. Musk previously criticized the chatbot for “parroting legacy media.”

Users of Elon Musk’s AI, Grok, say the chatbot’s responses have shifted to the right, and one expert said the explanation lies in a change to its internal instructions.

People are accusing Grok of a conservative bias, with at least one user claiming Grok cited the conservative Heritage Foundation in telling them that electing more Democrats “would be detrimental, as their policies often expand government dependency, raise taxes, and promote divisive ideologies.” The chatbot also pointed to “needed reforms like Project 2025.”

The apparent rightward tilt comes after xAI changed Grok’s internal system instructions, or system prompt, on on Monday, said Lucas Hansen, a computer programmer and cofounder of CivAI, a nonprofit focused on sharing information about AI capabilities and dangers. Changing an AI’s system prompt can alter its behavior quickly without it having to undergo a full update, said Hansen.

While a previous system-prompt update two months ago warned Grok not to automatically defer to mainstream authority or media, its newest instructions tell it to “assume subjective viewpoints sourced from the media are biased.” It also tells it not to shy away from viewpoints that are “politically incorrect” as long as they’re substantiated.

While Grok has always been more right-leaning than other chatbots, said Hansen, the most recent update to Grok’s system prompt is more aggressive than before, echoing xAI owner Elon Musk’s own rightward shift in politics. The chatbot has previously been accused of spreading disinformation over a supposed “white genocide” in South Africa as well as the Holocaust. Still, Musk has also complained about Grok “parroting legacy media,” and its previous sourcing from media outlets like Rolling Stone and Media Matters.

While it’s unclear if Musk is driving the changes at xAI, and if so, what his intentions are, Patrick E. Murphy, founder and CEO of Miami-based Togal.AI, and a previous Biden appointee on AI and trade, told Fortune that Grok has enormous power over its users and how they might perceive an issue.

“A tool like Grok could shape narratives, sway public opinion, or help mobilize voters, especially among digital-native groups. That kind of power, even if indirect, has real implications,” said Murphy.

This story was originally featured on Fortune.com

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• Starbucks is introducing premium features, including comfortable couches, warm lighting, and revamped wall art in redesigned stores starting in New York and Southern California. The changes align with CEO Brian Niccol’s Back to Starbucks plan, which aims to get customers to stick around locations longer, by adding ceramic mugs for some in-house orders and bringing back the condiment bar at U.S. locations.

CEO Brian Niccol has pushed for Starbucks to be more inviting to customers, and now some of its locations are seeing major changes aligned with his vision. 

Starting in New York and Southern California, Starbucks is enhancing its stores with premium features aimed at cultivating a “coffeehouse vibe,” as part of Niccol’s Back to Starbucks plan. Among the changes, Starbucks is adding cozier seating, warmer lighting, and locally inspired art to try to give each redesigned location more of a unique feel. 

Courtesy of Starbucks Coffee Co.

At a Bridgehampton, N.Y., location that is among the first to be remodeled, cozy chairs and couches, accentuated by dark, Starbucks-themed green walls and hardwood floors give the location a distinct look. A redesigned store in East Hampton, N.Y., also stands out for its wall art paying homage to the town’s seaside location and nautical roots.

Courtesy of Starbucks Coffee Co.

Courtesy of Starbucks Coffee Co.

The redesigned locations are part of Niccol’s plan to make Starbucks a place where customers want to spend time. Apart from the redesigns, some of the changes include offering ceramic mugs for some in-house orders, as well as bringing back the condiment bar for customers to add their own milk and sugar to drinks. The company is also instructing its baristas to warmly acknowledge customers, making them feel welcome.

Starbucks has made big strategic changes to improve efficiency, including cutting down on its extensive food and drinks menu and doing away with some options for drink customizations. A new order-sequencing algorithm piloted during the first quarter has also helped the company reduce wait times, with three-quarters of orders at test locations arriving in under four minutes at peak.

Courtesy of Starbucks Coffee Co.

The big changes Niccol has spearheaded have drawn praise from Starbucks founder Howard Schultz, who said he “did a cartwheel” after hearing about the CEO’s Back to Starbucks plan.

Still, the changes have yet to yield much in terms of financials, with the company reporting $8.76 billion in revenue for the second quarter, just below analyst expectations. Niccol said in an April note, however, that he was confident in his turnaround plan.

“We have a lot of work ahead, but we are on the right track and moving quickly,” Niccol said.

This story was originally featured on Fortune.com

© Courtesy of Starbucks Coffee Co.