Apple’s recent return to the top of the market rankings for the first time in 14 months says much about the changing mood around AI.
Just two months ago, Apple’s market capitalisation lagged Nvidia’s by over a trillion dollars. However, Nvidia has since lost a fifth of its value as investors fret over circular financing concerns and heavy AI infrastructure spending, part of a wider flight from technology stocks and a search for companies perceived as safer bets.
The iPhone maker, which briefly hit a $5 trillion valuation for the first time before retreating after reporting earnings on Thursday, is seen as one such bet.
The oft-cited criticism that Apple was falling behind in AI has, for now anyway, given way to appreciation for a company that has avoided the industry’s spending arms race.
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Microsoft and Meta’s latest results also highlight the changing mood. Microsoft shares spiked because it delivered the goods on AI (strong growth, rising profits) while also showing restraint (it cut its capital spending forecast to $175 billion from $190 billion).
In contrast, Meta was punished after raising its spending plans. Free cash flow plunged from over $12 billion to $784 million as AI investment absorbed much of the cash generated by the business, raising questions over the returns on such vast spending.
Mark Zuckerberg half-acknowledged the scale of the gamble, admitting this “is a big bet across the industry”, before adding that his “personal bet is that the people who invest in this will feel very good and be rewarded over time”.
The difficulty, of course, is that every company making the bet believes – or at least hopes – that it will be among the winners. Some big spenders may become big winners, but they cannot all finish first. There will also be losers.
That helps explain Apple’s remarkable turnaround. Shares are up roughly a quarter this year, easily trumping its magnificent seven counterparts, as wary investors embrace a company that can benefit from AI while avoiding the cost of building the technology.
The irony is that investors seeking shelter from expensive AI bets have turned to another expensive stock: Apple trades on 41 times trailing earnings and 35 times forward earnings, way above historical norms.
The current market preference is therefore not for cheapness but for certainty, even when that certainty comes with a decidedly hefty price tag.
