Apple Skipped the AI Spending Race. It Won Anyway.

For two years, the market rewarded companies that were pouring money into AI. The chipmakers, the cloud giants, the ones building enormous data centers, and even software companies, which are today struggling due to AI disruption. Apple critics during this whole time kept demanding more from the company on the AI front. Apple never delivered, and where it did, it just wasn’t in the usual Apple fashion. Apple looked like a mediocre company that apparently lacked AI innovation.

Then in July, Apple quietly took back the top spot as the world’s most valuable company, briefly passing Nvidia. What makes achieving that feat all the more interesting is how it got there. Apple barely spends on AI infrastructure. While its rivals commit hundreds of billions, Apple has taken a different path, and the market is finally realizing and rewarding it. Let’s not forget that a semiconductor sell-off was partly responsible for Apple’s rise to number one, but the company’s stock itself did a fair share of the heavy lifting.

The Numbers Behind the Gap

The difference in spending is extraordinary. Apple spends around 2.5% of its sales on capital expenditure. The big cloud companies spend way more, not to mention that they are about to enter a negative free cash flow era due to heavy AI spending. According to CreditSights, a research arm of the Fitch Group, Oracle is spending a massive 86% of its sales as capex. For Meta, Microsoft, and Alphabet, the figure stands at 54%, 47%, and 46%, respectively. Amazon is much better off but could still spend as much as 25% of its sales on capex.

That gap matters. Meta raised debt and paused buybacks to fund its buildout. Amazon has warned it may need to raise money to keep going despite recently raising $25 billion through bonds. Oracle stock has already lost half its value because of debt and backlog concentration concerns. Apple, meanwhile, generates huge cash flow, spends little of it on infrastructure, and keeps returning money to shareholders. 

The market has started to notice. For most of the AI boom, investors chased whoever spent the most. Now, the mood has shifted toward companies that can turn AI into products people actually pay for. That shift is partly what pushed Apple back to the top and could drive it even higher. 

Apple Doesn’t Need to Win the AI Race

Here is the part the market spent two years missing. Apple does not need to build the best AI model. It needs AI to become useful, and then deliver it to more people than anyone else can. 

That reach is the whole point. Apple has around 2.5 billion active devices in use. No rival has anything close. When AI features are ready, Apple does not have to go find customers. So all the money the hyperscalers are spending to build AI ultimately flows toward the companies that can put it in front of users. Apple owns that final step without carrying the cost of building the infrastructure behind it. What investors kept calling the absence of an AI strategy was indeed on purpose. 

The Upgrade Cycle Nobody Is Pricing In

Before you get too excited about the ability to monetize AI, do not lose track of Apple’s core business: selling iPhones and related devices. Apple reported a record fiscal second quarter, and Tim Cook termed iPhone demand as ‘extraordinary’. But this is where it gets even more interesting. At its June developer event, Apple unveiled a rebuilt Siri, far more capable and able to act across apps. It rolls out this year, and many are debating whether it is as good an AI agent as others on the market. Once again, investors need to stop looking at Siri’s capabilities; the value is somewhere else.

Most of the existing iPhones do not have the specifications to run the rebuilt Siri. It is astounding to think that nearly 850 million iPhones out of the 1.4 billion active iPhones cannot run Apple Intelligence. Morgan Stanley estimates that more than 1.3 billion aren’t powerful enough for the new AI-powered Siri. 

To get the new Siri, more than a billion users will eventually need a new iPhone. That sets up what could be the largest upgrade cycle in Apple’s history, and Apple controls exactly when that happens! 

The Premium Is Real

Apple stock trades at a forward earnings multiple of 38.07x, roughly 31% above its 5-year average. The sales multiple of 10.24x similarly sits 37% above normal as well. Investors have already priced in a good deal of this optimism. Wall Street earnings growth consensus, between 10% and 18% through 2029, is solid rather than spectacular, so the premium rests on the upgrade cycle delivering. 

Apple is entering this new phase from a position almost no company can match. It has the financial strength, the distribution, and an upgrade cycle waiting to be unlocked, all without the heavy spending weighing on its rivals, making the premium worth paying.