Apple’s earnings made me change my mind.
On State of the Market this morning, I said Apple stopped innovating and that the new CEO needs to shake things up.
After the show, I went and read the earnings report more carefully. Apple is innovating. They’re just doing it in a way that looks nothing like what Google, Microsoft, Meta, and Amazon are doing.
Alphabet, Microsoft, Amazon, and Meta are projected to spend a combined $800 billion on capital expenditures in 2026, up 67% from last year. That’s mostly going into data centers, GPUs, and the physical infrastructure to run AI in the cloud.
Apple’s capex this past quarter? $1.9 billion, down 36% year over year. Their full first half came in at $4.3 billion, lower than the prior year.
They are not playing the hyperscaler game at all.
What they are doing is spending $11.4 billion on R&D in a single quarter. That is the highest R&D number in Apple’s history, up 34% year over year.
Apple is investing massively in AI. They’re just routing it through silicon design and on-device intelligence instead of building cloud infrastructure.
Apple Intelligence is a bet on a completely different vision of AI.
Most of what your iPhone, iPad, or Mac does with AI is processed on the device itself.
Privacy stays intact, latency is near-zero, and everything works offline. The Neural Engine in their A-series and M-series chips handles the heavy lifting locally, and only the most complex tasks get routed to the cloud or to partners like Google’s Gemini.
Apple already has 2 billion AI computers sitting in people’s pockets, on their desks, and in their backpacks right now.
Every iPhone shipped this year is another node in the largest distributed AI network ever built.
The hyperscalers are spending hundreds of billions to build the infrastructure. Apple already owns the endpoints.
The new CEO, John Ternus, takes over September 1. He has spent 25 years at Apple as their hardware engineering chief and is the architect of Apple silicon.
The hardware-first leader I was asking for on the show this morning is the one already taking the chair.
The numbers in the quarter back this up.
iPhone revenue up 22%, Mac revenue accelerating because people are buying Macs specifically to run AI locally, and services revenue up 16%. Gross margin came in at 49.3%, with revenue and EPS both beating estimates and June guidance projecting 14 to 17% growth versus 9.5% from the Street.
The hyperscalers are spending a trillion dollars to build the future of cloud AI. Apple is shipping the future of edge AI to 2 billion people who already own their hardware.
Both bets might pay off. They are not the same bet, and they will not produce the same companies on the other side.
This is the kind of recalibration Andrew, Licia, Hans, and I do every Monday morning when we sit down to pick the week’s trade for the Ticker Highlight Show.
Eight candidates on the table. Hours of arguing. We poke holes in each other’s setups until only one trade is left standing.
That trade goes out to members at 10:30 AM Monday.
The track record since May: 39 trades closed, 81.6% win rate, $4,000 turned into $138,848 by rolling 25% into every weekly trade. The losers are on the sheet too.
The next trade drops Monday at 10:30 AM ET. If you’re not in the room, you miss it.
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Mark Sebastian