Apple Inc. (NASDAQ:AAPL) shares are trading near an all-time high as the company prepares to report its fiscal third-quarter earnings on Thursday. The stock closed Friday at $333.02, up 3.5%, and added another 0.2% in premarket trading Monday, reaching $333.83. The rally added approximately $167 billion to Apple's market capitalization.
The move comes as a divergence from the broader market trend. The Nasdaq Composite slid 0.64% on Friday and was down 2.0% for the week, as investors rotated out of technology names on renewed concerns about AI infrastructure spending.
Capital spending contrast
Apple's capital spending for the latest quarter is estimated at just 1.8% of revenue, based on a filing analysis. In contrast, Alphabet Inc. (NASDAQ:GOOGL) reported capital expenditures of $44.9 billion in the second quarter, representing 37.5% of its revenue and resulting in negative free cash flow of $5.9 billion. Alphabet's executives lifted their 2026 capital expenditure guidance to a range of $195 billion to $205 billion, sending shares down nearly 7% on Thursday.
The disparity is stark: Apple's capital spending of $1.97 billion in the fiscal second quarter was roughly 21 times smaller relative to revenue than Alphabet's. While the comparison is not perfectly equivalent — Alphabet has a significant cloud infrastructure division, while Apple's income primarily comes from devices and services — it highlights what the market is currently valuing.
Market valuation
The market is pricing in this distinction. Apple's forward earnings multiple stands at approximately 36.5 times, roughly 52% higher than Alphabet's 24.1 times. However, minimal capital expenditure does not equate to a lack of investment. Apple increased its research and development spending by 34% to $11.42 billion in the latest quarter, amounting to 10% of its revenue. This indicates that a larger share of investment is captured in operating expenses rather than physical assets.
Analysts' initial consensus projects revenue of $108.97 billion and earnings of $1.89 per share for Apple's fiscal third quarter, representing year-over-year growth of 15.9% and 20.4%, respectively. This revenue forecast aligns close to the middle of Apple's guidance range of 14%-17%.
Previous quarter momentum
The previous quarter established solid momentum. iPhone revenue increased by 22% to $56.99 billion, driven by demand for Pro models, while Services expanded by 16% to $30.98 billion. Apple continues to rely on services as its primary margin buffer, with gross margin for services standing at 76.7%, compared with 38.7% for products. However, Chief Executive Tim Cook cautioned: "We expect significantly higher memory costs."
Investor sentiment
Investor patience with indefinite AI spending is wearing thin. "The fear of missing out is becoming more like a fear of massive overbuilding," said Peter Andersen, chief executive at Andersen Capital Management. The debate will be resolved on Thursday's call, where investors are set to scrutinize capital expenditure for the June quarter, assess demand for the iPhone, and look out for any updated margin guidance. Merely exercising restraint will not be adequate.
Risks and outlook
Apple trades at a 36.5 times forward earnings multiple. A decline in iPhone sales or a gross margin falling short of its earlier 47.5%-48.5% guidance could reduce that valuation premium. Short-term challenges also include increased memory expenses and supply limitations. Apple's advantage lies in funds it has not yet deployed. On Thursday, the company needs to prove that this caution has not held back sales. With shares trading close to all-time highs, there is limited tolerance for unclear results.
