Apple Stock Is a Good Place to Hide Amid AI Capex Angst, but Don’t Expect Big Gains

The September quarter earnings season for Magnificent 7 stocks is now over, with the exception of Nvidia (NVDA), which reports outside the usual reporting season. All the remaining six stocks fell after their earnings. Alphabet (GOOG) (GOOGL) was the worst performer among the lot and had the biggest single-day fall in its history, eroding around $500 billion in market cap in the process.

The selloff was severe, and names like Microsoft (MSFT) fell despite strong earnings. Notably, while tech companies have been jostling to raise their capex budgets amid soaring artificial intelligence (AI) buildout costs, Microsoft lowered its 2026 capex budget. It was, however, a timing issue due to delays from third-party chip providers. That said, the company expects to generate positive free cash flow next year despite projecting higher capex.

Markets Are Getting Wary of Soaring AI Capex

Looking at other hyperscalers, Alphabet is projecting a “significant increase” in 2027 capex, while Amazon (AMZN) expects to spend “meaningfully more.” Meta Platforms (META) has reserved its 2027 capex guidance for the Q4 earnings call, but consensus estimates call for a steep rise. S&P Global, for instance, expects Meta’s capex budget to soar to $225 billion in 2027, which would imply a 55% increase compared to the upper end of the company’s 2026 forecast. Separately, S&P Global expects total investment in AI infrastructure to rise to $1.3 trillion next year. While that would sound like a mind-boggling number, some estimates call for the number to top $1.5 trillion.

Apple (AAPL) sat out the AI spending spree and has instead partnered with other companies. 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.

At a time when Big Tech companies have been posting negative free cash flows, Apple continues to be a free cash flow powerhouse even though inventory buildout amid component shortages took a toll on its cash flows in the September quarter.

Apple Has Been an “Anti-AI” Play

Apple has, in fact, pretty much been an “anti-AI” play like, say, Adobe (ADBE) and Accenture (ACN). The iPhone maker has been a good place to hide for investors who are getting increasingly wary of the ever-growing AI capex at a time when companies like Amazon and Alphabet are witnessing a slowdown in their core businesses, which the AI-driven bump in their cloud revenues cannot hide.

As for Apple, its hardware sales have been resilient, and while iPad sales in the September quarter missed estimates, it beat on other products, importantly the iPhone—its proverbial bread and butter product that accounts for nearly half of its revenues.

However, Apple's lucrative and high-margin Services business reported single-digit growth in the quarter, which was the lowest since 2022. The company expects the segment’s revenues to rise between 8% and 9% in the current quarter, which implies a further slowdown.

In recent years, the Services segment has typically grown faster than hardware sales, and its growing contribution to the overall revenues is among the reasons Apple has seen a valuation rerating.

How to Play AAPL Stock

Apple is an outlier among its Mag 7 peers in terms of AI capex, and its price action reflects this divergent strategy. Despite having come off its 2026 highs, AAPL is still up over 30% for the year, which, for context, is over twice that of Nvidia, the second-best-performing Mag 7 stock this year.

I have long argued that Apple is a hedge against what many see as an AI bubble. However, while the stock can be a relative outperformer in the short term amid growing angst over tech companies’ AI capex, I don’t see it delivering meaningful returns in absolute terms given the rich forward price-to-earnings (P/E) multiple of 36x, which is the second-highest among the Mag 7, barring what else but Tesla (TSLA).

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