Apple stock reached a record closing price of $336.91 on July 27, pushing its market capitalization to $4.93 trillion and reclaiming the title of world's most valuable public company from Nvidia. The surge comes ahead of the company's fiscal third-quarter earnings report on July 30. Dan Niles, founder of Niles Investment Management, said Apple's delayed entry into artificial intelligence became an accidental advantage by avoiding the heavy capital expenditure that has pressured rivals' cash flow. Alphabet raised its 2026 capital expenditure guidance to $195 billion to $205 billion for AI infrastructure, pushing its free cash flow negative in the second quarter for the first time since its 2004 initial public offering. Apple instead reportedly pays Google around $1 billion annually to license a custom Gemini model for Siri's AI upgrade, a fraction of what competitors spend building proprietary AI models.
Apple Licenses AI Model While Rivals Build Infrastructure
Speaking on CNBC's Squawk on the Street, Niles said Apple avoided the AI spending spree that has hit rivals' cash flow. "Sometimes you get lucky for being incompetent," Niles said, adding that Apple was "horrible" at getting AI onto iPhones. Alphabet's spending pushed its free cash flow negative in the second quarter, the first such quarter since its 2004 initial public offering. Apple reportedly pays Google around $1 billion a year to license a custom Gemini model for Siri's AI upgrade. That fee covers a fraction of what rivals spend building their own AI models from scratch. Apple briefly passed Nvidia as the world's most valuable company earlier this month.
Niles Flags Valuation Risk Ahead of Earnings Report
Niles said he was less comfortable with where the stock trades today. Apple's price-to-earnings ratio sits in the high 30s, well above the S&P 500's roughly 22 times earnings. He warned that could leave Apple exposed if Thursday's numbers disappoint, particularly if rising semiconductor prices squeeze margins. Memory chip costs have surged this year, a trend already forcing price hikes across the phone market. "You can't put all the money in the world into this one stock because they're just not spending on AI," Niles said. "It doesn't make sense at a certain valuation." Wall Street expects Apple to post revenue near $108.9 billion and earnings per share of $1.89 for the quarter, up from $1.57 a year earlier. Thursday's report lands in the middle of a packed earnings week for Big Tech, with Meta and Amazon reporting the same week under similar AI spending scrutiny. Niles said he plans to stay largely on the sidelines for those names too, citing concerns about capital expenditure tied to each.
FAQ
Why did Apple stocks reach all-time highs despite slow AI development?
Apple avoided the heavy capital expenditure that pressured rivals' cash flow by licensing AI technology instead of building proprietary models. The company reportedly pays Google around $1 billion annually for a custom Gemini model, a fraction of the $195 billion to $205 billion Alphabet allocated for 2026 AI infrastructure spending.
What valuation concerns did Dan Niles raise about Apple stocks?
Niles noted Apple's price-to-earnings ratio sits in the high 30s, well above the S&P 500's roughly 22 times earnings. He warned the valuation could leave Apple exposed if earnings disappoint or if rising semiconductor prices squeeze margins, stating "it doesn't make sense at a certain valuation."
