The recent tech selloff has rewarded Google's and Apple's AI strategies while punishing other Big Tech players
Shares of Google and Apple have been the top performers among the "Magnificent Seven" group of megacap tech companies amid concerns about an AI bubble.
It's easy to generate returns when the rising tide of artificial intelligence lifts the entire market. But what about when the AI waters start to recede, as they're doing now?
Amid the recent volatility, two "Magnificent Seven" names are emerging as the sector's most resilient bets: Alphabet and Apple.
The Nasdaq Composite Index COMP has slid 6.1% since the beginning of November. Concerns about AI overspending boiled over after the third-quarter earnings season, and not even a strong earnings report from Nvidia (NVDA) earlier this week could alleviate the selloff.
Alphabet $(GOOGL)$ $(GOOG)$ and Apple $(AAPL)$ have dodged the worst of the recent correction. They are the only constituents of the "Magnificent Seven" group of megacap tech companies that have seen their stocks rise in the last three weeks, ending the Friday session up 6.6% and 0.4%, respectively, month to date. It's a sign that Google and Apple have the potential to not just survive but thrive if the AI bubble deflates.
These two names have outperformed recently for two distinct reasons. Google's Gemini offering has picked up steam, especially with the recent launch of Gemini 3 and Nano Banana Pro. Meanwhile, Apple's modest capital expenditures - which garnered harsh criticism earlier this year - have proved to be a useful hedge against fears of overspending on AI.
"Everybody wants to criticize Apple for not really having an AI strategy," Que Nguyen, chief investment officer of equities strategies at Research Affiliates, told MarketWatch recently. "But they're exhibiting great capital discipline. If you're worried about the circular financing and overspending, Apple is sidestepping all of that."
Circular financing refers to the concern that companies like Nvidia are investing in AI players that then purchase those companies' products.
Apple has primarily advanced its AI strategy by distributing others' technology across its user base, Nguyen pointed out. It has partnered with OpenAI to integrate ChatGPT into its operating system and devices and is reportedly in talks to incorporate Gemini into its Apple Intelligence product. Apple is also reportedly working on developing AI home devices.
However, Google's stock outperformance shows that the market isn't punishing all capital expenditures. The company raised its 2025 AI spending estimate to a range of $91 billion to $93 billion in October, up from $85 billion in July, but investors have been pleased by Google's AI track record this year. In the span of just a few months, Google has fought off concerns that AI would kill its Search business and has transformed Gemini from a second-rate chatbot into a serious competitor to OpenAI's ChatGPT. Google's varied business segments have also provided an advantage in distributing and monetizing AI technology.
On the other hand, shares of Meta Platforms (META) have shed 8.3% this month, after CEO Mark Zuckerberg announced plans to accelerate AI investments. Investors are concerned that the company is spending irresponsibly and lacks a focused AI strategy.
According to Nathaniel Liddle, senior fixed-income research analyst at Columbia Threadneedle, hyperscalers like Google are well positioned to weather an AI downturn.
OpenAI has inked over $1.4 trillion worth of deals for AI infrastructure, but it's currently unclear how the company will follow through on those commitments. CEO Sam Altman recently shared in a post on X that the company is on track to end 2025 with over $20 billion in revenue.
In a worst-case scenario where OpenAI fails to monetize "and some of these big AI spending announcements don't come to fruition, the hyperscalers are actually in a pretty good position," Liddle said during a webinar earlier this week. A popping of the AI bubble would eliminate smaller players and lead to a widespread spending pullback, dismantling the current AI capex race that Big Tech companies are embroiled in.
In particular, Liddle said, "Google would benefit to the extent that you take away potential competition from ChatGPT in search and some requirement in spending," leading it to "win on the income statement and cash-flow statement."
Apple could also have the last laugh if the AI trade collapses, according to Nguyen. During the dot-com bubble, "the companies that spent the capital were the ones that went out of business," he said. For example, telecom company Lucent collapsed when demand for its products evaporated. It was eventually acquired by a foreign rival.
"The biggest beneficiaries were the companies that came after, that bought the capacity for cheap," Nguyen added.
Hundreds of billions of dollars are currently flowing into circular-financing agreements and capital expenditures. If AI fails to generate a sufficient return on investment, demand for AI infrastructure would dry up and data-center assets would drop in value. Nguyen believes Apple is in an opportunistic position should the AI hype fade.
The selloff is also providing hints about who the biggest losers could be. Nvidia and other hardware suppliers would see orders dry up if the AI trade unwinds.
Although semiconductors, memory chips and other AI infrastructure investments have been hot this year, Liddle said the caveat was that "these are still historically cyclical investments" that have higher risk.
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