Apple regains safe-haven status as AI trade looks shakier

(Bloomberg/Ryan Vlastelica) — Another broad selloff that dented high-flying AI trades from Nvidia Corp. to Palantir Technologies Inc. left an old stalwart of the tech sector unscathed: Apple Inc.

The iPhone maker notched a modest gain while the Nasdaq 100 Index fell 1.6%. It was a replay of Tuesday’s session, when Apple eked out an advance and the broader index sank 2.1%. Over the past month, Apple has risen more than 5%, while the tech-heavy index is up less than 0.5%.

The outperformance is a return to form for Apple, whose cash-generating prowess and rock-solid balance sheet have in past bouts of turbulence left it relatively unscathed. The stock has lagged behind the broader market for most of this year as investors chased artificial intelligence riches.

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“We’re seeing enthusiasm roll over in the more speculative names, which have become frothy and a victim of their own success. And in a risk-off environment, Apple’s cash flow, stability and predictability are all attributes investors are shifting toward,” said Jack Ablin, chief investment strategist at Cresset Wealth Advisors.

The Nasdaq 100 was on track for its third loss of at least 1% in the past six sessions amid renewed concern that AI profits remained distant while companies ramped up borrowing to fund the massive spending needed to break through.

Nvidia fell almost 3% and Palantir lost more than 5%. Advanced Micro Devices Inc. shed nearly 6% after results late Wednesday prompted worries over its profit margins.

Apple’s revival comes after it gave a positive forecast last week, which helped to overshadow results that showed weaker trends in China. It generated about $27.5 billion in net earnings last quarter, on revenue of $102.5 billion.

The stock is up just 8.4% this year, less than half the nearly 20% gain of the Nasdaq 100.

Part of the reason for its lackluster run has been investor doubts about its ability to deliver on AI products. Now, that vice has become something of a virtue. Apple isn’t spending aggressively on AI the way other major tech companies are, but it may still be a beneficiary as consumers access the technology through Apple’s hardware.

Earlier this week, Bloomberg News reported that Apple is planning to pay about $1 billion a year for an artificial intelligence model developed by Alphabet Inc. to help power an overhaul of its Siri voice assistant.

“This is a positive, since it helps Apple participate in AI and $1 billion is a whole lot less than the other companies are spending,” Ablin said.

Alphabet Inc., Meta Platforms Inc., Amazon.com Inc., and Microsoft Corp. together spent more than $110 billion on capex last quarter, and the four companies are expected to boost combined capital spending 34% to roughly $440 billion over the next 12 months, according to data compiled by Bloomberg.

Separately, Morgan Stanley wrote that Apple could become a huge player with robotics and physical AI, which it sees as a vast market.

“As AI & robotics transform the physical world, Apple can leverage its vertical integration, vast 2.3B+ installed base, and underappreciated Robotics knowhow to become a leading player in embodied AI,” wrote analyst Erik Woodring.

The firm said it was conservatively estimating Apple Robotics as a $130 billion revenue opportunity by 2040, representing “30% of Apple’s revenue base today, and accounting for at least 10%, but up to 25% of Apple’s current share price.”

In a maximum-case scenario for the stock, it added, “we estimate 22% Robotics market share in 2040, similar to global iPhone market share today, or nearly $300bn of revenue and $65 of per share value today.”

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