AI trading cools down, creating new winners: Apple leads the "Magnificent Seven" this year, rebounding 16% from its low and adding $650 billion in market value.

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As concerns over the return on investment in artificial intelligence continue to rise, investors are returning en masse to Apple.

Since bottoming out on June 25, Apple’s stock has risen by 16%, adding approximately $650 billion in market capitalization and reaching a new record high on Monday. Meanwhile, the Philadelphia Semiconductor Index has dropped about 10% over the same period, and the Nasdaq 100 Index has only edged up by 0.3%.

Apple has gained 18% so far this year, making it the best performer among the "Technology Seven Giants." In contrast, Alphabet and Amazon are both down more than 10% from their May peaks, and Microsoft has fallen by 20% this year, marking its worst annual performance since 2022.

Apple's strong performance reflects deep-seated concerns in the market about the AI infrastructure boom, which is shaking the traditional logic for tech stocks. As chip stocks and cloud computing giants feel the pressure, Apple, not deeply involved in the data center arms race, is increasingly viewed as a safe haven by investors.

Meanwhile, the highly anticipated foldable iPhone is scheduled for release in September, further boosting market confidence.

AI Fades, Capital Seeks Safety in Apple

This reversal in market sentiment is essentially the result of investors' growing doubts about whether large-scale AI investments can deliver returns.

"The market is experiencing a competition, and Apple is currently benefiting from being outside the AI storm," said Mark Bronzo, Chief Investment Strategist at Rye Strategic Partners:

"Investors worry whether the AI spending of the hyperscale cloud companies can yield reasonable returns. Some also believe semiconductor sector gains have had excessive run-ups. These factors together are pushing funds back to Apple—it’s a stable target without the aforementioned risks."

Although the Philadelphia Semiconductor Index has recently retreated on doubts about the sustainability of AI computing spending, it is still up 78% this year and is on track to mark its best annual performance since 1999.

Rising Memory Prices Pose Challenge, Foldable Screen iPhone Provides Catalyst

Apple’s rebound is not without challenges. The rapid rise in memory chip prices poses a direct threat to the company’s profit margins. On June 25, Apple announced price increases across its Mac, iPad, and home device lines, with stock price seeing its largest one-day drop since April 2025.

This price hike didn’t affect the iPhone, but the company hinted that more products may follow suit in the future. However, analysts generally believe that the price increase will have a limited substantive impact on Apple’s sales. JPMorgan analyst Samik Chatterjee wrote in a research note on July 7:

"Long-term trends show that pricing has limited impact on multi-year sales opportunities. Apple has raised prices across its product portfolio before, but sales have always continued to grow."

On the other hand, the foldable-screen iPhone expected to launch in September could be an important catalyst. According to Nikkei News, Apple has notified suppliers that this year’s inventory target for the foldable iPhone is about 10 million units, higher than the previously forecast 7–8 million units. The device is expected to be priced high and may drive more users to upgrade.

Louis Navellier, Chief Investment Officer at Navellier & Associates, said:

"While Apple isn’t dragged down by AI weaknesses, the main reason people don’t want to sell is that it’s likely about to launch a blockbuster product. The pricing advantage of the foldable phone is enough to offset the impact of memory issues on profit margins, and strong demand will support real company growth."

Improving Profit Expectations, Record Cash Flow

On the fundamentals side, Apple’s financial performance is improving rapidly.

Apple's fiscal year 2026 (ending September 30) revenue is expected to grow nearly 15%, marking its fastest growth since 2021, when the pandemic spurred dramatic increases in electronics sales. Net profit for the period is expected to rise by 17%.

Even more prominent is the cash flow performance. Apple’s free cash flow this year is expected to reach a record $140 billion, more than 40% higher than in 2025.

By contrast, Alphabet’s free cash flow this year is projected to drop about 67% to $21 billion. Against the backdrop of large-scale expansion of AI capital spending, Apple’s conservative spending strategy means its cash accumulation far outpaces other large tech companies.

High Valuation Restricts “Buy” Ratings

The premium paid by investors for these advantages is not cheap.

Based on expected earnings for the next 12 months, Apple's price-to-earnings ratio is about 34 times, second only to Tesla among the "Technology Seven Giants" and far above the historical 23 times average of the past decade.

This partly explains why only 61% of Bloomberg-tracked Apple sell-side analysts gave it a “buy” rating—much lower than the roughly 90% “buy” rating for Microsoft, Amazon, Meta, and Nvidia.

Rye's Mark Bronzo said:

"I currently hold Nvidia and not Apple, because Nvidia’s growth prospects and valuation attractiveness both stand out. But as long as market uncertainty persists, Apple’s cash flow and services business will drive its stock price to creep higher. If you think AI capital spending will continue to expand, buy Nvidia; if you think it will slow, Apple is the better choice."

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