Disclosure: I bought AAPL in 1984 and 1986, and still have about 20% left. I sold some of my holdings late last year for 1602 times the price at which I invested. I have followed the company closely since my first Apple 2 Plus in 1980, and have a long-term perspective that others may not have.
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The stock market seems to be missing the superiority of Apple’s strategy for AI. At some point that superiority will be recognized, and Apple’s stock will move up in relation to its AI-embracing peers. I don’t know when that will happen, but is seems inevitable to me.
When Apple stumbled with its inability to implement the features promised at WWDC 2025 for Apple Intelligence, it was clearly an embarrassment. But what has emerged instead is a clear strategy that is immensely superior to its peers. Let me explain.
Microsoft, Alphabit (Google), Amazon and Meta are each spending $100-200B this year to build out their respective AI datacenter footprints, in addition to large amounts of R&D on developing LLMs and AI models. Open AI and Anthropic are investing at a similar pace, although Anthropic is not in the data center investment race:
Source: ChatGPT
Meanwhile, Apple is returning much of its $99 B in estimated annual free cash flow to shareholders in the form of buybacks and dividends, while spending a paltry $1B per year to utilize the industry leading Gemini LLM used in Google Assistant, and avoiding the AI Infrastructure capital spending gold rush altogether. Rather than spending such exorbitant amounts on data centers, Apple has embraced an “AI on the Edge” approach by developing advanced proprietary chips in Apple Silicon with industry leading Neural Engine processing, and has been embedding these processors on all their devices for several years now. The advantage of this approach in terms of privacy have been widely touted by Apple and generally understood by analysts and industry followers. But what is missing is an understanding that Apple is using the 2.5 billion devices that we all bought for Apple’s distributed Data center architecture (and gave Apple 40-60% gross profit margins for the privilege of owning those devices). So not only is Apple avoiding the huge Cap Ex, their customers are willingly paying Apple about $150B billion each year in gross profit margin on iPhones, iPads and Macs. It is a brilliant strategy that others cannot copy (not even Samsung).
IMHO, the AI bubble is unsustainable. Revenue over the next few years will not materialize at levels to pay back on all the spending. Of course, AI is here to stay since it delivers real value (unlike crypto for example) and hence AI will not go away – just as trains did not go away in the mid 19th century after overbuilding of railroads, or the internet did not go away after the dot-com crash in 2001.
But when the AI valuation bubble bursts, Apple will be sitting pretty and others will struggle to justify their massive investment. At that point, maybe the market will appreciate the wisdom of Apple’s AI strategy.
