Apple is increasingly being seen as a defensive investment as concerns grow about the sustainability of the artificial intelligence boom and the potential for a global bond-market sell-off. This has led to a shift of funds away from some of the technology sector's biggest AI beneficiaries towards Apple. On Tuesday, Apple's shares rose 2.6% while the broader technology stocks declined, highlighting its relative strength.
The divergence in performance is notable, with Apple's 30-day correlation with the Nasdaq-100 falling to negative 0.86, a level not seen since 2005. This indicates that Apple and the Nasdaq-100 are moving in nearly opposite directions, despite Apple being a significant component of the technology-heavy index, accounting for approximately 7.5%. This marks a reversal from early 2024 when investors favored AI-focused companies, with Apple now benefiting as investors question the high valuations of AI-related firms.
Dave Mazza, CEO of Roundhill Investments, describes Apple as a "hedge inside the Nasdaq," suggesting it doesn't carry the same risks associated with the AI trade. After trailing the Nasdaq-100 during the first half of the year, Apple is now up about 20%, compared to the Nasdaq-100's roughly 15% gain. Apple's appeal stems from its established ecosystem, services business, and recurring consumer demand, offering a different earnings profile compared to companies whose valuations are heavily tied to AI infrastructure spending. This makes it less vulnerable to rising government bond yields that can pressure expensive growth stocks by increasing the discount rate applied to future earnings.
This trend suggests a potential shift in technology-market leadership, where investors may be reallocating capital within the sector. Instead of abandoning technology entirely, they are moving from aggressive AI exposures to companies like Apple that are perceived to offer stronger and more diversified underlying businesses, serving as a relative safe harbor within the Nasdaq amidst broader market uncertainties including rising bond yields and fiscal deficits.
