‘AI Laggard’ Apple Is Sitting Pretty, But AAPL Stock Might Be Running Out of Room to Outperform

Apple (AAPL) stock has seen a reversal of fortunes of sorts. It underperformed the Nasdaq 100 Index ($IUXX) in the first half of the year but has since raced ahead and is now outperforming the tech-heavy index. Apple’s price action over the previous couple of years was dampened by lingering concerns that it was lagging in the artificial intelligence (AI) race as investors chased names seen as AI winners.

Magnificent 7 Stocks Have Looked Weak

However, the situation has flipped over the last couple of months. Investors are now getting increasingly wary of tech companies’ ever-rising capex to build AI infrastructure. For context, among its Magnificent 7 peers, Alphabet (GOOG) (GOOGL), Amazon (AMZN), and Tesla (TSLA) raised their respective 2026 capex budgets, while Meta Platforms (META) raised the lower end of the guidance by $5 billion. However, it maintained the upper end at $145 billion.

Microsoft (MSFT) stood out as the company not only maintained its capex guidance for the current calendar year but said that it expects to generate positive free cash flows next year despite an expected increase in capex, which I believe are the golden words markets want to hear from hyperscalers. No wonder, MSFT rallied the most among Mag 7 peers following its June quarter earnings and has built on those gains, rising over $500 in the process.

Apple Flags Memory Shortage Issues

Apple stock plunged following its earnings, but that had nothing to do with its capex — far from it, actually, as the market's concern has been that the company is actually underspending on AI. The post-earnings decline was due to the guidance miss, as Apple blamed supply-side issues, particularly the memory shortage, taking a toll on sales as well as margins.

During the earnings call, Tim Cook — who stepped down as CEO Sept. 1 — said, "If you look beyond September, we see the market pricing for memory continuing to increase, which could drive an increasing impact on our business, and we're continuing to evaluate this.”

Meanwhile, Apple has since recovered from the post-earnings crash and is up nearly 21% for the year, which for context is the highest among Mag 7 stocks, barring Nvidia (NVDA), which is up around 22.5%.

The price action is not hard to explain. Nvidia is the ultimate beneficiary of AI capex, as much of the spending is landing in its coffers given how central its chips are to the AI ecosystem. The company expects its revenues to rise 70% in the next fiscal year, with the management noting that sales would double if not for supply constraints.

Apple Has Looked At Partnerships in AI

Then we have Apple, which is working on partnerships instead of spending aggressively on building its own infrastructure, unlike the hyperscalers, which are looking to own the entire stack and are even designing custom chips.

Apple partnered with OpenAI, but the relations between the two companies have soured after the iPhone maker accused the latter of misappropriating trade secrets, an allegation it obviously denied. Earlier this year, Apple announced a multi-year partnership with Alphabet under which Google Gemini models would power Apple's AI foundation models. These models would in turn power the long-awaited Siri update and Apple Intelligence features.

Apple Stock Is Outperforming This Year

I have long argued that Apple is a hedge against what many see as an AI bubble, and the divergence between the stock and Nasdaq 100 has been quite stark this year. For instance, a CNBC analysis using ThinkOrSwim data shows that the 30-day correlation between Apple and the Nasdaq 100 was -0.86 last Thursday, August 24. While Apple tends to have such periods of negative correlation given its status as a defensive name within the overall tech landscape, the only time the correlation was so inverse was in Q1 2024. Back then, investors chased AI names while shunning Apple, which was seen as lagging in its AI initiatives.

This time around, Apple is sitting pretty while fellow Mag 7 peers — excluding, of course, Nvidia — are struggling to convince markets that their AI buildout is not a vanity project (recall how Meta Platforms spent billions on the metaverse) but will actually generate a healthy return on investment.

The bull case for Apple revolves around large language models (LLMs) and AI becoming commoditized. Other tech companies would struggle to justify their capex while Apple emerges a winner by buying the best solutions out there and integrating them into its devices. I won't rule out that possibility but am still wary of buying AAPL stock at a forward price-to-earnings (P/E) multiple of over 37x, which is the highest among Mag 7 stocks other than Tesla, whose valuation isn’t really a benchmark. 

While Apple might still be a relative outperformer, I don’t see much upside left in the stock in the near term as the “anti-AI” trade has largely played out.

On the date of publication, Mohit Oberoi had a position in: MSFT , META , NVDA , TSLA , AMZN , GOOG . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.