The technology company, Apple Inc., is an American icon. But while it is one of the world’s great companies, Apple’s shares have lagged the technology sector of the benchmark equity index, the S&P 500, for the last 3 years. Until last week, Apple’s stock could be characterized as “a dog.”
Apple shares had been under pressure this year because of multiple worries: tariffs, poor results in China, which is a major market for Apple, and most importantly the perception that the company is losing the race to be a dominant company in the rapidly growing area of Artificial Intelligence, AI.
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In the second quarter of this year, the stock was down almost 8%. For the first half of the year, Apple’s stock was down 17%, while the S&P 500 was up 5%. But last week, Apple stock went from the “dog house” to the White House and popped 13% for its largest weekly gain since 2020. Apple’s closing price on Friday was $229 a share. What happened to change the fortunes of the company, and is the outlook for the company improving?
Most immediately, last Wednesday, Apple’s CEO Tim Cook went to the White House and met with President Donald Trump. Cook committed Apple to investing $100 billion in the United States on components for Apple products that would be manufactured in the U.S. by U.S. companies such as Corning Glass. This $100 billion investment is on top of an earlier promised $500 billion capital investment in the U.S.
The capital investment plans pleased Trump. He responded by announcing that Apple would receive relief from tariffs on semiconductor imports from Asia. This removed a major cloud over the stock. More fundamentally, on July 31, Apple reported better-than-expected earnings and revenues for its June quarter. The quarterly financial results were especially impressive because the numbers showed stronger-than-expected iPhone sales, renewed momentum in China, and better-than-expected overall sales of Apple services.
What happens next?
Wall Street analysts want to know what Apple will do to get back in the game on Artificial Intelligence. Some analysts suggest that Apple partner with OpenAI and embed OpenAI’s Chat GPT AI program into the Apple suite of products. Other analysts suggest that Apple make a large AI acquisition such as purchasing outright a company such as Perplexity AI, which has introduced a well-received search engine. In a short period of time, Perplexity AI has become a formidable competitor against Alphabet Google’s search engine. Alphabet Google is the dominant company in search. Wall Street analysts indicate that Perplexity would have a purchase value of $30 billion.
Apple could easily afford that price. Apple is a prodigious generator of free cash flow. For the year ended June 30, 2025, Apple’s free cash flow number exceeded $96 billion. Arguably, for Apple’s stock to regain its former status as a must-own technology company, Apple must become a major player in the AI space. Without some kind of announcement about a partnership or acquisition, Apple’s stock will probably continue to underperform America’s largest technology companies. AI investment is driving the American economy and Apple must integrate AI into its suite of products.
Still, investing in AI alone will not solve all of Apple’s problems. The stock’s price to earnings multiple at just over 30 times is expensive relative to its long term earnings growth rate of under 10%. Both Meta and Alphabet Google are growing earnings faster than Apple yet they have lower price earnings multiples, a common valuation metric.
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Apple does have a very profitable earnings model and an extremely loyal customer base of over 1.5 billion users. At the same time, however, Apple needs to grow its earnings and revenues faster if it wants to regain its status as a global technology leader.
Pleasing Trump is not enough.
James Rogan is a former U.S. foreign service officer who has worked in finance and law for 30 years. He writes a daily note on the markets, politics, and society. He can be followed on X and reached at [email protected].