Apple’s (NASDAQ: AAPL | AAPL Price Prediction) stock has partially recovered from a sell-off that hit other large tech companies harder, because they are “dumping” hundreds of billions of dollars into data centers. Apple, the argument goes, does not have this exposure to infrastructure investment. Ryuta Makino, research analyst at Gabelli Funds, told Barron’s, “People do look at it [Apple] as a haven against this big AI spending, this ROI [return on investment] story, just because their capex is relatively low compared to other hyperscalers,”
Opps. Despite a recovery in Apple’s stock following staggering iPhone sales in the last quarter, Apple’s stock is up 8% over the last year, while the S&P 500 is up 15%. Apple has also underperformed the S&P this year. Apple shares are down 3% while the S&P is flat. The Apple earnings “stock recovery” did not last long.
When Apple announced its most recent quarter, Tim Cook, Apple’s CEO, said, “iPhone had its best-ever quarter driven by unprecedented demand, with records across every geographic segment, and Services also achieved an all-time revenue record, up 14 percent from a year ago.” Indeed, iPhone revenue for the period was $85.3 billion, up from $61.2 billion in the year-ago quarter.
The lack of investment in AI, in the eyes of some, is good news. Indeed, Apple is not sinking hundreds of billions of dollars into data centers that may never be in sufficient demand to offset this huge investment. However, what if AI is the wave of the future, as its proponents say it is? Apple is flat-footed, with the primary access to AI for its customers being a deal with Alphabet (NASDAQ: GOOG) to use Gemini to power the AI version of Siri. If Apple is wrong about the gamble, it will never recover because it is already too far behind.
And, Alphabet represents the possibility of tremendous AI returns. Its stock is up 73% in the last year. Gemini use has started to close in on OpenAI’s ChatGPT. Alphabet plans to spend $185 billion on AI this year. That puts tremendous pressure on its balance sheet. Its investors don’t care. AI is too important.
If AI is so critical, in the eyes of investors, for Alphabet, what does that say about Apple?
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