When AI-focused stocks take a beating, investors have found a safe harbor in a company that has largely stayed out of the AI spending race: Apple (AAPL).
Chip stocks have suffered sharp selloffs multiple times this year, yet Apple has mostly weathered the storm. On the 46 trading days when the Philadelphia Semiconductor Index fell 2% or more, Apple rose on 30 of those days, roughly two-thirds of the time.
According to Yahoo Finance calculations, this is an unprecedented phenomenon. From 1994 through last year, Apple gained on only about one-sixth of such heavy selloff days, and no prior year came close to matching this year's performance. Apple's trajectory has essentially decoupled from chip stocks.
The correlation measure between Apple and the semiconductor index, which gauges how closely the two assets move together, turned negative in July and hit a record low in September.
This effect was on display Friday. Over the past month, Apple shares climbed about 3%, while the iShares Semiconductor ETF plunged roughly 17%. The widening performance gap also pushed Apple past Nvidia on Friday to become the most valuable company on Wall Street.
This isn't just a one-month story. Apple has gained about 27% year to date, more than double the S&P 500's advance.
Why Apple?
Look at capital expenditures and the answer becomes clear. Over the most recent four reported fiscal quarters, Amazon, Alphabet, Microsoft and Meta collectively spent over $600 billion in capital expenditures — funds directed toward data centers, chips and other long-term assets, with the vast majority aimed at building out artificial intelligence. Apple's capital expenditures totaled just about $10 billion.
Investors are starting to worry about that massive spending. Alphabet, Amazon and Meta all just reported negative free cash flow, meaning their expenditures have exceeded operating income. Amazon's cash burn hit a record, and Alphabet's stock suffered its worst October on record. No wonder investors are flocking to Apple as a safe haven.
But a hedge isn't a shield against all damage. Friday was chip stocks' worst trading day since June, and Apple shares still fell about 1%.
Apple can't fully insulate itself from the AI boom either. AI data centers are snapping up memory chips in huge quantities, driving up Apple's costs for purchasing memory. BofA analyst Wamsi Mohan expects these costs to meaningfully erode iPhone profit margins, and he believes the market's margin expectations for Apple next year are overly optimistic. In a Friday research note, BofA wrote: "Our earnings estimates for Apple are below consensus," while maintaining a buy rating on the stock.
Apple will report fourth-quarter earnings after the close on Monday. Its margin guidance for the December quarter will reveal whether the market's favorite AI hedge is itself about to face AI-related troubles.
Comments