Apple Is an AI Safe Haven—but Safety Isn’t Cheap

Apple AAPL -1.83%decrease; down pointing triangle is one of the most valuable companies in the world. It is also the only one among the top several whose future doesn’t hinge entirely on the AI boom.

That safe-haven status has helped the smartphone giant’s stock at a time when tech peers are getting battered. Apple’s shares are up 1.4% in the past month as of Monday’s close. Google parent Alphabet, Meta Platforms and Nvidia are all down by double digits over that period.

There are at least a few compelling reasons to favor Apple in an otherwise choppy market.

Chief among them is that the company’s smartphone business has been surprisingly resilient during an anemic period for the market. The number of smartphones sold globally fell 22% from a year earlier in the third quarter, according to International Data Corp., but iPhone unit sales fell only 4%.

And Apple has been adept, at least so far, at squeezing out profits even when it is selling fewer devices. The company raised prices for its smartphones and Mac computers this summer by as much as 33%. Product revenue in its latest quarter rose 12.5% to reach $82.9 billion, the company said Monday, higher than analysts were expecting.

The future for those products looks solid, too. Apple started selling its foldable Duo phone last month, alongside new Pro and Pro Max versions of its iPhone 18. Recent supply-chain indicators suggest “encouraging” demand for them, according to a recent Goldman Sachs note, which supports the shift toward higher-priced phones.

Meanwhile, the company’s peers have been maxing out spending on AI with limited returns to show for it, a state of affairs investors are no longer uniformly happy about. Apple has a substantial financial cushion, with $56.7 billion of cash and marketable securities on its balance sheet, and no big AI bills coming due.

The company, in fact, had just $9 billion of capital expenditures in its recently ended fiscal year—small potatoes compared with the nearly $800 billion the five large hyperscalers are projected to shell out collectively this year. It raked in more than $30 billion of free cash flow in its September quarter, when most of Big Tech was sending more cash out the door than it was bringing in.

Apple is clearly doing well. But there are also reasons to wonder whether investors are rewarding it too much for all its advantages.

One reason for pause is that it isn’t clear Apple’s price-increase strategy is sustainable in the longer term. The company may have raised prices a bunch this year, but it remains to be seen whether it can keep doing so without alienating customers.

Many customers might hang on to older phones longer if they see prices as out of reach. While mobile carriers are helping bridge that gap now, with generous trade-in and financing offers to help customers get new iPhones, that could change. The average age of traded-in iPhones already surpassed four years for the first time in the second quarter, according to device-insurance player Assurant, up from 3.7 years in the first quarter.

Pressure on Apple’s margins from rising component costs, meanwhile, isn’t likely to ease any time soon, a factor executives nodded to on a call with analysts Monday. Apple has had particular trouble with memory, the cost of which is skyrocketing because it is in high demand for AI computing.

That hasn’t put much of a dent in Apple’s profit margins—yet. The company on Monday said its overall gross margin was a healthy 47.9%, in part because recent tariff refunds have offset higher costs. But Chief Financial Officer Kevan Parekh projected a narrowing to between 45% and 46% in the current quarter. That prompted a decline in the company’s shares in after-hours trading.

Apple has a few other problems on its horizon, too. It has long enjoyed hefty fees on transactions inside apps, for one, but regulatory and legal changes in the U.S., European Union and elsewhere mean app developers can do more transactions through other channels. That is limiting the growth of App Store revenue and its high-margin services business overall.

Apple’s new chief executive, John Ternus, presents another wild card. He didn’t offer much of a distinct vision on Monday in his first earnings call at the helm. But how he puts his stamp on the company could heavily influence how insulated Apple remains from the AI spending boom.

Apple isn’t a bad option for investors who want to go long on tech without being overexposed to AI. At the company’s current valuation, though, it is quite an expensive one.