Apple shares outperform as investors use stock as hedge against AI spending risks

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Apple shares outperform as AI hedge

Highlights

Apple rose as much as 1% Thursday and was the only Magnificent Seven stock gaining while chip stocks declined after negative AI spending signals.
Apple now shows its most extreme negative 40-day correlation to the chip index since 1994, acting as a hedge due to limited AI infrastructure exposure and strong free cash flow.
Apple trades at 36 times trailing 12-month earnings—double Nvidia’s—while expected revenue growth slows to 9.7% in 2027 and 5.5% in 2028, raising valuation concerns.

Shift in investor positioning around AI

As reported by Moneyweb, Apple is increasingly benefiting from swings in Wall Street sentiment on artificial intelligence because it is not spending as aggressively on AI infrastructure as peers such as Microsoft, Amazon, Alphabet and Meta. Instead, the iPhone maker is leaning on its traditional consumer hardware strengths, including enthusiasm around its new foldable iPhone Duo, to attract investors seeking relative stability within the technology sector.

That divergence is becoming more visible in daily trading. On Thursday, Apple rose as much as 1% and was the only Magnificent Seven stock in positive territory while the broader market fell, with chip stocks leading declines after results from Lam Research and Meta raised fresh questions about AI spending. The pattern also appeared last week when debt concerns around CoreWeave triggered a selloff in AI shares, sending the SOX down more than 11% and a Magnificent Seven index down 3.1%, while Apple gained 2% after the company said demand for the Duo was "nothing short of extraordinary."

Jordan McCall, senior portfolio manager at Russell Investments, said Apple is acting as a liquid hedge against AI volatility for investors who still want exposure to large-cap technology. Michael Matousek, head trader at U.S. Global Investors, said Apple is increasingly viewed as a defensive alternative because it lacks direct exposure to the themes driving semiconductor shares and hyperscaler capital expenditure moves.

Valuation risks cloud longer-term outlook

Market data points to how far the trade has developed. Apple's 40-day correlation to the chip index has been negative since early July and is at its most extreme in data going back to 1994, while BTIG's Jonathan Krinsky said the stock has a negative 90% correlation with the chip index on a 10-day basis.

Support for the shares is also coming from Apple’s cash generation and earnings durability. McCall said Apple’s strong free cash flow helps it stand apart from rivals whose cash flow has fallen sharply or turned negative as they ramp up AI infrastructure investment, while chipmakers face the risk that earnings growth could weaken if spending slows.

Even so, investors face a growing valuation question. Apple is expected to report fiscal fourth-quarter earnings in the next few weeks, and Bloomberg Intelligence data shows revenue is expected to rise about 15% for the year, below the broader technology sector, before slowing to 9.7% in fiscal 2027 and 5.5% in fiscal 2028. The shares are trading at 36 times trailing 12-month estimated earnings, their highest multiple since January 2008, about twice Nvidia's valuation and above the levels for both the Nasdaq 100 and the S&P 500.

That combination could make further outperformance harder to sustain if sentiment toward AI spending improves again. Krinsky wrote on Oct. 19 that a rebound in the SOX after its recent 16% pullback is likely to coincide with Apple retreating at least toward its 50-day moving average, which is 4.7% below the most recent closing price. McCall also said another wave of investor enthusiasm for AI could bring chipmakers back into favour and revive the inverse pattern that has recently lifted Apple.

In our earlier coverage of the AI-linked stock selloff tied to funding and rate fears, we explained how hotter-than-expected inflation data revived expectations of further Fed hikes and pressured technology shares. We also highlighted that investors were reassessing the cost of financing large-scale AI infrastructure, with highly levered names such as CoreWeave and other AI-exposed stocks facing the sharpest losses as bond yields climbed.

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