Apple (NASDAQ:AAPL) touched a $5 trillion market cap last week before its fiscal third quarter report landed on July 30. You are watching a stock that spent much of last year lagging the AI trade suddenly leading it, and the reason comes down to how Apple chose to play the AI buildout differently than everyone else.
The Bull Case
Apple’s fiscal third quarter revenue grew 16% year over year to $109.4 billion, a June quarter record, and earnings per share rose 29% to $2.02, though about $0.11 of that came from a tariff refund rather than underlying operations. iPhone revenue hit a June quarter record of $54.3 billion, up 22%, still powered by the iPhone 17 lineup.
Shares still fell about 10% after the report, as investors focused on September quarter guidance of just 9% to 11% growth, below the 12% Wall Street had modeled, and on supply constraints Apple said would worsen. The call also marked Tim Cook’s last as CEO before he hands the role to John Ternus on September 1 and moves into an executive chairman post.
The Google Gemini arrangement has moved from reported plan to delivered product. Apple is now paying about $1 billion a year to run Google’s Gemini model behind the rebuilt Siri AI it unveiled at WWDC26, rather than building that infrastructure itself, still a fraction of what its rivals are spending. Alphabet, Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), and Meta Platforms (NASDAQ:META) still plan more than $700 billion in combined 2026 capital spending on AI, while Apple has spent only about $6.8 billion on capital expenditures through the first nine months of fiscal 2026.
That restraint left Apple generating roughly $34 billion in operating cash flow in the June quarter alone. The Apple Upgrade leasing program, run with Klarna, has now actually launched, letting customers pay as little as $17.99 a month for a new iPhone on 12 to 24 month leases, with Mac and iPad leases running 24 to 36 months. Reports of Apple’s first foldable iPhone have also moved up considerably: rather than 2027, it is now expected this September alongside the iPhone 18 Pro lineup, likely branded the iPhone Ultra, with a roughly 7.8 inch folding display and a price near $1,999 to $2,399.
Between the leasing plan and the foldable launch, Apple has more near term catalysts than it did heading into the year, even as investors digest a weaker growth outlook for the upcoming quarter.
The Risks
Apple still trades expensive, with a forward price to earnings ratio of 38, at a 30% premium to its 5-year average. Management’s own guidance now supplies the margin worry directly: gross margin is expected to fall from 50.1% to 47%-48% next quarter as memory costs keep climbing, something CFO Kevan Parekh described as more than fully explaining the sequential margin decline.
September quarter revenue growth is guided below what Wall Street wants and management’s commentary regarding worsening supply constraints is something investors should really consider. Apple’s revenue growth has swung wildly since 2012, including several flat or negative years, so this year’s double digit pace is not guaranteed to continue.
Apple vs Alphabet
Alphabet (NASDAQ:GOOG) makes a natural comparison, since it is both a rival in AI and the company is now supplying Apple’s rented Gemini capacity. Alphabet trades at a forward P/E near 16 times, cheaper than Apple’s high 30s multiple. Institutional sentiment has been stable at both companies, with 201 funds holding Alphabet in Q1 2026 versus 203 the quarter before, compared to 170 versus 169 for Apple. Short sellers are barely present in either name, betting against just 0.53% of Alphabet’s float versus 1% of Apple’s.
The gap in valuation is the headline number, and it is Alphabet that looks like the discount. The market seems anxious about Alphabet’s heavy capital investments eating into near-term margins and the ongoing risk of search disruption. On the other hand, Apple commands a premium valuation because investors view it as a high-margin, hardware-and-services tollbooth that safely monetizes AI across its massive user base without shouldering the underlying compute costs.
The Conclusion
Apple’s next test comes with its fiscal fourth quarter report in late October, when investors will see whether the memory cost pressure management flagged actually compresses margins as guided, and whether Ternus’s first quarter running the calls brings any shift in tone.
While we acknowledge the risk and potential of AAPL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AAPL and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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