The world’s most valuable companies are taking opposite paths in the AI race
Healfromzero.com – Which is worth more: a company that’s sitting out Big Tech’s mega AI spending spree or a company that’s fueling it? Apple makes the phones and computers that billions of people use to access AI chatbots and agents. But it’s been accused of falling behind in AI, and its core business might have fewer growth opportunities than a rapidly advancing new technology.
Meanwhile, Nvidia makes the chips and developer tools that power AI. It’s essential to the technology’s future – and more vulnerable to the uncertainty that comes with it. Nvidia became the first company to hit $5 trillion in market capitalization in October, just months after it reached $4 trillion last July.
But this month, Apple became the world’s most valuable company, surpassing the chipmaker. Which is more valuable might depend on where AI is as a technology, according to Joe Tigay, portfolio manager for the Rational Equity Armor Fund, a fund that prioritizes total return on investment. “When we’re in the part where we’re creating (AI)… that’s where you’re going to be watching Nvidia,” he said.
In the future, “we’re going to be looking for companies that are going to monetize the consumption of AI. And Apple absolutely wants to be that company.” Unlike many of its Big Tech peers, Apple isn’t pouring billions into building new data centers. Instead, its revenue is largely driven by iPhone sales – exactly the type of consistent and predictable business that appeals to investors.
Apple’s iPhone revenue grew 22% in the company’s most recent quarter compared to the same period last year; overall revenue rose 16% year-over-year and beat Wall Street’s expectations. But analysts are wondering whether the company plans to revamp its hit products in the age of AI and develop new ones. Apple has faced setbacks with AI innovations such as its Siri AI assistant, which is set to launch this fall.
The iPhone’s success, however, has satisfied some of those concerns for now, especially since Apple can partner with other companies like Google to use their AI models. “The reason why Apple has done so well is people finally recognize that they don’t need to spend hundreds of billions to be relevant in this market,” said Bloomberg Intelligence analyst Anurag Rana, “because they will use whichever best (AI) model that’s out there, and that model company would be privileged to be on the iPhone.” But AI is impacting the company in another way: a memory shortage spurred by the AI data center buildout. Apple has already raised the prices of Mac computers, iPads and other products, and some analysts believe iPhones could be next.
It recently launched a customer leasing program for iPhones, iPads, Apple Watches and Macs instead of buying them, which could make the devices feel more affordable. Apple said it’s expecting even higher memory costs for the September quarter. Shares dropped by more than 6% after the market closed on Thursday following Apple’s earnings report.
“We reluctantly raised prices, I would say,” CEO Tim Cook said during his last earnings call as the company’s chief executive. “We did it because we’re in what I would characterize as a 100-year-flood on memory pricing, with exponential increases in memory prices.” Nvidia’s chips are essential to AI data centers, pushing its business to stratospheric heights. The company reported record revenue in its most recent earnings report in May, up 20% from the previous quarter and 85% from the same period a year ago.
And it holds 81% of the market share revenue for data center chips, the International Data Corporation told CNN earlier this year. But that success means investors and analysts now expect nothing short of explosive growth every quarter. And whether it delivers on those expectations in the long term largely depends on whether tech giants continue spending big on data centers.
There have also been growing concerns that AI companies are propping each other up through a web of funding deals, with Nvidia at the heart of those worries. Nvidia has invested billions in companies like OpenAI and Anthropic, which have in turn committed to buying Nvidia’s chips. Nvidia’s chip sales have made it the biggest beneficiary of the AI boom – but consumers still need smartphones or laptops to use AI services – like the ones Apple makes.
“Nvidia is selling horsepower,” said Rational Equity Armor Fund’s Tigay. “Apple is selling the steering wheel.”
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