Dan Niles on the biggest issue with Apple

Dan Niles argues Apple’s biggest issue is valuation rather than AI strategy. He says Apple benefits from Google’s massive AI capex burden, allowing Apple to “free ride” on Google’s spending while paying only a few billion dollars to put AI on its phones. However, he warns that Apple’s high-30s P/E versus the S&P 500 at 22x leaves little room for error heading into earnings, especially if semiconductor costs have risen and margins disappoint. Niles says he is cautious on mega-cap tech into earnings, including Meta, Microsoft, and Amazon, because investors are demanding very high bars while capex remains heavy. He also notes Google’s stock fell despite strong cloud growth because EPS barely improved and spending ramped up, reinforcing the market’s sensitivity to capex and margin pressure across big tech.