Apple's decision to stay out of the expensive AI race had been supporting its stock. Now that's working against it

Apple’s status as a company staying out of the artificial intelligence spending race helped its stock rise steadily in the first half of the year, as investors grew increasingly skeptical of the AI boom. Now sentiment has shifted, and the iPhone maker’s stock is under pressure, according to Bloomberg.

Since closing at a record high on July 28, Apple's stock has lost 10% of its value. This came after the company issued a disappointing forecast in which it warned of constraints on component supplies.

At the same time, investors began shifting funds en masse into the stocks of the tech sector’s largest players—Microsoft, Amazon, and Alphabet—whose strong results dispelled market concerns about excessive capital expenditures on artificial intelligence, according to Bloomberg. This drove up the stock prices not only of the largest AI investors but also of chip manufacturers and other beneficiaries of such investments.

Apple, which has chosen a strategy of developing AI services through partnerships and avoiding a costly “arms race” for computing infrastructure, has ranked among the 25 worst-performing stocks in the S&P 500 over the past three weeks, the agency notes. Meanwhile, the rest of the tech sector moved in the opposite direction: the Nasdaq 100 index rose 8% during this period, and the Philadelphia Stock Exchange Semiconductor Index gained 14%.

This marks a sharp reversal from July, when Apple shares rose 6.8%, the Nasdaq 100 fell 6.6%, and the semiconductor index plummeted 21%, marking its worst month since 2008, as noted by Bloomberg.

Fluctuations in Apple’s stock price are further evidence that its shares are increasingly decoupling from the broader market. Their 40-day correlation with the S&P 500 is virtually zero—a level not seen since 2013, according to the agency. The correlation with the semiconductor index has fallen to its lowest level since records began in 1994 and recently turned negative, meaning the stock is moving in the opposite direction compared to chipmakers.

During trading on August 18, Apple shares rose 1.6%, while the broader market fell under pressure from surging Treasury yields. The Nasdaq 100 technology index plummeted 1.6% amid a sell-off in chipmakers.

In fact, the influx of capital into computing infrastructure directly harms Apple, as it leads to shortages and rising costs of the components used in its devices, Bloomberg explains. Prices for memory chips—which are estimated to account for 10% to 20% of a smartphone’s assembly cost—have skyrocketed amid strong demand from data centers, the agency notes.

Memory prices are expected to remain high for an extended period, and investors fear that rising costs will erode margins or weaken demand for Apple products. This is particularly relevant if the company raises iPhone prices, as it has already done for other products, including the iPad and Mac computers. This issue takes on special importance ahead of the launch of the foldable iPhone, which is expected in September.

“Throughout the year, we’ve seen this ebb and flow of anxiety and enthusiasm regarding capital expenditures (...) The latest financial results have clearly allayed some of these concerns, triggering this rotation,” said Jordan McCall, a senior portfolio manager at Russell Investments. He expects this “see-saw” to continue, as investors are now more comfortable with spending, while Apple remains a special case in the AI investment cycle.

"It stands to reason that Apple’s stock won’t move in lockstep with companies in the AI infrastructure supply chain, and at times this inverse correlation will work against it. When you’re worried about costs, cutting back seems sensible, but now that AI trading is in full swing, we can’t say the company is reaping the same benefits as the rest,” said Clayton Allison, portfolio manager at Prime Capital Financial.

Despite Apple’s high valuation and questions about where new drivers of revenue growth will come from, the stock remains attractive to Ellison. “Apple remains one of the best companies thanks to its impeccable balance sheet, ecosystem, and share buybacks. If the AI trend starts to lose steam again, as it has already done this year, Apple’s limited exposure to the AI trend will work in its favor and limit the decline,” he believes.

31 of the 47 analysts covering the company's stock recommend buying it. 11 of them are neutral, and only five recommend selling.

This article was AI-translated and verified by a human editor