The year 2025 is coming to a close, and while the broader markets are expected to deliver double-digit returns for the third year in a row, we saw a rotation of sorts. After leading the stock market rally from the front for the previous two years, the “Magnificent 7” stocks took a backseat. And if not for the 65% rise in Alphabet (GOOG) (GOOGL), the group’s weighted average returns would have followed those of the tech-heavy Nasdaq Composite Index ($NASX). While some Magnificent 7 names, notably Nvidia (NVDA), delivered triple-digit returns in 2023 and 2024, none have found a way into even the top 25 gainers of the broad-based S&P 500 Index ($SPX) this year.
Depending on our perception of technology, we may or may not call the 2025 price action the bursting of the artificial intelligence (AI) bubble, but one thing became clear this year: Investors are not buying the story of ever-increasing AI capital spending and are increasingly concerned about the toll they are taking on tech companies’ cash flows.
But things are not that simple, and just as markets are punishing companies for their excessive exuberance towards AI, underinvestment is not being rewarded either, with Apple being a prime example.
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Since the AI euphoria began in 2023, Apple has been trying to shake off the perception that it is neglecting the technology, even as other tech companies move ahead. This does not mean that the company led by Tim Cook is resting on the laurels of the past and has taken several measures to catch up. Among other things, Apple has gradually added artificial intelligence features to its iPhones as part of “Apple Intelligence” and plans to release updated Siri next year.
It has increased its capital spending toward AI, and during its fiscal third-quarter 2025 earnings call in July, Cook said Apple is “reassigning a good number of people to focus on AI functions within the company.” Without giving details, Cook discussed an “exciting roadmap ahead” for new AI products and did not rule out the possibility of a major acquisition to bolster its AI capabilities. However, I have serious doubts about the company’s acquisition of Perplexity, as previously rumored, given their very different approaches to customer privacy.
In particular, one of the reasons Apple is falling behind in AI is the company’s focus on privacy, which is atypical for AI that is fed by massive amounts of data. However, I think it could be the company’s unique selling proposition (USP), as users worried about AI companies spying on their data would find solace in Apple’s ecosystem, which prioritizes user privacy at its core.
Overall, I’d say Apple took a fairly balanced and measured approach to AI, and while it lost its first-mover advantage, the Cupertino-based giant was never known for being one. Some of its most successful products, such as the iPod, iPad, and iPhone, were launched when competitors were already offering competing products.
Apple never really bet on AI, and the company’s efforts to capitalize on the technology, which is touted as the next big thing from the internet, leaves a lot to be desired. However, the company took baby steps in typical Apple style and is trying to improvise on what others are doing; As the common saying about the company goes: “Apple doesn’t need to be first. It just needs to be the best.”
That said, Apple would be a name to double down on if you’re worried about an AI bubble, as the stock never really benefited from the AI rally and is therefore at the lowest risk of a decline. Apple could be a bastion of security and could see buying interest if the much-feared AI bubble bursts. Otherwise, I don’t see the stock outperforming the average Magnificent 7 by a significant margin in 2026. While expected strong iPhone 17 sales would keep sentiment afloat, there’s not much on the table with a forward price-to-earnings (P/E) multiple of around 34x.
The consensus view is also not overtly bullish for AAPL stock, and is rated a “Moderate Buy” based on the consolidated ratings of 40 analysts followed by bar diagram. The stock’s average price target of $290.85 is approximately 7% higher than current price levels. Among its Magnificent 7 peers, only Tesla (TSLA) has a lower rating than Apple.
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As of the date of publication, Mohit Oberoi held positions at: AAPL, NVDA, TSLA, GOOG. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com
