Is Apple Winning the ‘AI Scare Trade’?

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Another week, another AI induced panic in the markets.

An AI scare trade right now. We saw that sell off over in the US, another AI scare grips of the market.

And market is just taking a look around at any possible sector that could be disrupted by AI, selling first.

Asking questions later.

Part of the reason for this week's sell off was a thought experiment posted by a research group called Satrini playing out some of the ways artificial intelligence could disrupt the economy by twenty twenty.

Eight, Zaitrini Research publishing a hypothetical scenario where the agentic AI commerce routing of retail payments up ends apparently the E merchant subsidy businesses of names like American Express, Syncrity, and Capital One, those names plunging.

The hypothetical scenario played into fears that have been rippling through the market for a while, fears that AI could make entire lines of Business Week with consequences for consumer spending,

That and thropping out with an update on Claude that talked about modernizing the Cobol programming language of dated programming language that IBM uses, and that set the IBM share price down by thirteen percent. And so it sorts of questions about where you could hide, if anywhere.

And there's a second concern in the market that some of the biggest tech companies that place some of the biggest bets on AI may not have enough to show for it.

Most notably, you've seen all of the major hyperscalers. So the companies that are really spending aggressively on AI, this is your Microsoft, Meta Alphabet, Amazon. The market has become a lot more impatient looking at this spending, wondering when are we going to start seeing this money paying off.

Ryan Vlastilica covers tech stocks for Bloomberg, and he says that as the AI scare trade grips the market, there's one company that's been remarkably insulated.

Now Apple manages to be nowhere near either of these central narratives right now. If you look at the two major themes in the technology sector, it is concerns about AI capex, which Apple isn't doing, and it's concerns about AI related disruption, And it doesn't really seem like Apple is really in the path of AI disruption in the same way that you would say software companies are, or just growing list of companies and sectors are as.

Most of the NASDAC has trended down in recent weeks, Apple stock has often moved in the opposite direction.

The overall moves of the major ends aren't dictating the way Apple moves. This has really been visible in days when there's been a lot of AI related against in the market. Things are down pretty broadly except for Apple, which is up pretty solidly. So we've been describing this as Apple decoupling itself from the broader market.

That's something Ryan says hasn't happened to this degree since the days of the iPod.

This level of decoupling, we're at a nearly two decade long.

So far, AI jitters don't seem to be hitting Apple as hard as its competitors, and Bloomberg's Apple reporter Mark German says that's a mixed blessing.

If you asked Apple six months ago, would you like to be an AI company at the forefront or not, they would say yes. But they're extremely behind, not on purpose but by accident.

I'm Sarah Holder, and this is the big take from Bloomberg News today on the show Apple and the AI scare trade. Is Apple a safe haven for investors freaking out over AI? And is that a good thing for the company long term? Bloomberg's Ryan Vlastilica says that Apple's decoupling from the Nasdaq is notable because, if anything, Apple has been a longtime market bellweather.

I think in a normal kind of environment, when you don't have this sort of AI wildcard, it's pretty common to see Apple moving somewhat more or less in line with the overall market because it has sort of traditional drivers like consumer spinning, consumers sentiment, overall growth rates. How what is GDP doing right now? All those other factors now, Applestock has been a pretty strong performer. That's why it's one of the biggest companies in the world.

To understand just how far Apple has diverged from its peers in the Nasdaq. Ryan looks at correlation.

Basically, you measured on a range of positive one to negative one. So positive one would be complete correlation, two different securities moving in complete synchronicity with each other, and of course negative one would be complete inverse correlation. Say oil prices in airline stocks, so if oil prices are going up, airline stocks are probably going down, so that would be inverse correlation.

And he applied that analysis to Apple.

So we charted out correlation between Apple and the NASTAQ one hundred, which is primarily composed of these big tech companies. If you want to put a number on it, it fell to a correlation of think point two one.

That's a forty day average, and that zero point two one from earlier in February was the lowest level since two thousand and six. Ryan says it's bounced up a little since then.

Apple is basically no correlation at all, which means it's not really moving on the major themes that are driving the overall index, the.

Big themes like the AI hype cycles and selloffs. Over the past month, at least, Apple hasn't really been getting caught up in the drama. While the mag seven is down about four and a half percent so far in February, Apple is up. That's after underperforming the MAG seven in the longer term. Ryan says, there's a number of reasons for this.

It's not a major spinder, and it doesn't seem like it's really at risk of AI disruption in the way that some of these other stocks are.

But that doesn't mean investors see a bet on Apple as a bet against AI.

The fact that you can get all of these AI services on the iPhone, the fact that people will be accessing AI through the iPhone or other Apple products means that if you are still optimistic about the potential of AI, Apple isn't a terrible way to play that thesis, because it is something that could see as AI proliferates increased growth or adoption. People aren't going to start abandoning their

So it's clear that investors are treating Apple as a bit of an outlier right now, But it's not as simple as Apple going up. While others are going down. Apple shares have had their own ups and downs even over the past two weeks. They're just out of sync in this way that you're describing. Can this be explained by investors seeing Apple as this kind of hedge against AI bets or are they also responding to other kinds of news coming out of the company.

I do think a lot of it is Apple's sort of insulation from some of these a cross currents.

Now.

I was speaking to someone who basically said, the fact that correlation is so low with the broader market does kind of increase its value as sort of diversification within the overall market, especially since you do have this sort of AI upside optionality from the fact that if AI really proliferates and everyone is using it, maybe that needs more demand for the next generation of iPhone or other Apple products like that, so you can use these things on the most advanced hardware that you can get.

Yes, and we'll talk to Mark about some of the ways that Apple is investing in AI moving forward and how it's AI bets have gone so far. But I'm wondering why this decoupling matters right now. What does it reveal about how investors are viewing the AI race more broadly because these two fears that you laid out, that companies are spending too much on AI or that AI is going to disrupt all these software companies, they feel a little bit in intention.

Yes, I think you're right about that. I think there is a lot of concern right now about when are we going to see this payoff? And at the same time, is this going to destroy everything? So those two narrios have been very much president in the market, and you're

Coming up. Bloomberg's Mark German on how a series of missteps and missed opportunities put Apple in this position in the first place, and what the company is doing to catch up on AI. This Winter Olympics, there was a video going around from the two thousand and two Winter Games in Salt Lake City. It was that year's thousand meters short track speed skating final, and it's relevant to today's AI race.

I promise this is a nine lap race and now it's only one man across the line for gold, it'll be over.

In ninety six, five skaters were competed, including Apollo Ono, the American speed skating icon. By the final lap, Ono is at the head of a tight pass and an Australian skater, Stephen Bradbury, is dead last. But then something remarkable happens and the other three leading skaters topple onto the ice.

Say brad your class the line.

And Bradbury glides past them for the gold, Australia's first in the Winter Games. To this day, when somebody wins because the rest of the field has flamed out, Australians call it doing a Bradbury. I wanted to bring Bloomberg's chief Apple correspondent, Mark German into the conversation and ask him, with Apple getting investor love for effectively being behind in AI, is the company doing a Bradbury?

Well, if they're doing a Bradberry, I think they fell backwards into it, because the plan certainly wasn't for them to do a Bradbury. The reality is is that Apple was caught flat footed, and so yes, they're getting the benefit on the stock right now because of that. But that's not a good thing for the long term business being so behind in a core technology, and we're talking about the core technology of all core technologies here.

So right Apple has trailed its magnificent seven peers pretty significantly, at least when it comes to spending on AI, even though the company famously is sitting on a lot of cash. So when you think about Apple's position right now, how much of the you know, separation from the pack is due to a strategy or is it a result of a failed strategy?

Oh, I absolutely think it's the result of failed strategy. And then they've seen how these other companies are having their own financial issues and their own problems, and they said, you know, maybe it's kind of a good thing that we failed, So maybe let's turn the failed strategy into our strategy. Is that what's happening I think to some extent.

Yeah, is that what you're hearing from people at Apple that they want to lean into this now?

Well, no, I haven't heard specifically they want to lead into it, but they're you know, very careful when it comes to investing. They've had opportunities to buy you know, major AI companies like Mistral out of France and Perplexity, that search engine AI app, and they've chosen not to make those major investments. They're partnering with Google to help them build their own new Apple Foundation model using Gemini.

In some ways, Apple is being rewarded by investors for that. Can you talk more about how you're viewing this decoupling dynamic.

I think investors have realized that Apple is failing in AI, and they're seeing Apple as a company that's very focused on the hardware, and if you look at you know investments and portfolio diversification. You know, Apple really is not an AI company. It's a hardware company, whereas all these other companies have become AI companies. And it's not the way it was supposed to be. Apple was supposed to become an AI company by now, but it's diversified because it's simply not.

How does the company think about its place in the AI race.

It depends who you're asking, It depends when you're asking them. If you ask them in an official setting, they'll probably tell you that they think they're doing a great job in AI. The reality is is that they're trailing all their competitors in AI. Their lms are subpar, their models for all intentsive purposes or subpar. Their integration of AI across the software stack is subpar. They're only really getting religion now on using AI to run the company, so they are very much far behind.

Apple has declined to comment on Bloomberg's reporting about these AI efforts.

Will they turn things around, Absolutely, But will they be pushed to the forefront. No. But I think with the right combination of models and the combination of their hardware, I think from an AI hardware perspective, they could definitely be a leader.

Well, Apple does have several AI hardware products on their way. Tell me a little bit more about those.

So they're working on three main ones. One is a version of air pods with cameras, One is smart classes with cameras, and one is a necklace slash pendant that you can wear on your shirt or run your neck with cameras. And the idea is to use visual intelligence the environment around you to feed data into sery for

So it's not investing in chapbots to the same scale as some of its competitors, but it is investing in these hardware products. Can you talk about how that's a different strategy than some of the other mag seven companies and why you think it's developed that way, Well, they.

Are building a chatbot. They are going to revamp theory around this chatbot type of interface later this year and deeply integrate these Gemini models across iOS, IPOs and macOS with the next major versions that are going to be introduced in June and released in September.

But they're late on that front.

Yeah, they're you know, pretty late. And then in terms of hardware, you know, Apple makes eighty percent of the revenue from products. They're a hardware business. They have not really shown a way that they're going to be able to monetize AI in the near future from a software stack standpoint, and so the only way they're going to be able to monetize AI to any considerable degree for

So if investors get past their ditters about AI and they decide in whatever way that the technology will be transformative will support high company valuations and massive spending, what does it mean for Apple from.

An investment standpoint? I just don't see how Apple being so behind and not showing any engineer in terms of AI makes them an interesting company to invest in right They're an interesting company to invest in because everyone knows they're going to come out with great hardware. Everyone knows that they're forecasting solid results for the current quarter. Everyone knows they're going to continue making a ton of money

This is the Big Take from Bloomberg News. I'm Sarah Holder. To get more from The Big Take and unlimited access to all of Bloomberg dot com, subscribe today at Bloomberg dot com Slash podcast Offer. If you liked this episode, make sure to subscribe and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow