Apple Inc. AAPL has made a strategic move to strengthen its artificial intelligence (AI) capabilities with the acquisition of Canadian AI startup, DarwinAI. This acquisition is poised to have a significant impact on the development of upcoming iPhone and iPad features.

What Happened: Apple is on the brink of introducing “Project Graymatter,” a collection of generative AI features and services scheduled to make their debut with iOS 18 this autumn, according to Bloomberg’s Mark Gurman.

DarwinAI specializes in swiftly analyzing chips and other hardware components at the initial stages of manufacturing to ensure their proper functionality.

Apple’s interest in DarwinAI primarily stems from its technology that can compress AI models and neural networks to optimize on-device operations.

These AI features, under the banner of “Project Graymatter,” are anticipated to play a pivotal role in the iOS 18 update, positioning this software as one of the most substantial advancements in the 16-year history of the iPhone.

Notably, Apple’s endeavor to license Alphabet Inc.’s GOOG GOOGL Google Gemini AI models is a separate initiative. The longevity of this move as a temporary solution until Apple’s AI models are fully operational on iPhones remains uncertain.

Why It Matters: Apple has quietly been acquiring more AI startups than many of its competitors over the past decade. This strategic enhancement of its AI capabilities is now materializing with the acquisition of DarwinAI.

Furthermore, by potentially integrating Google’s Gemini AI models into its new iPhone software features along with DarwinAI’s technology, Apple could emerge as a frontrunner in personalized AI.

This alignment could lead to substantial annual payments from Apple to Google, fortifying their partnership even further.

Price Action: Apple, which climbed 0.64% to $173.72 on Monday, saw a 0.24% decline in Tuesday’s premarket trading, as reported by Benzinga Pro.

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