Apple's Quarter and the Case for Spending Less on AI

Apple reported its fiscal fourth-quarter results after Monday’s close, and the numbers were solid rather than spectacular. That may be exactly what this market wants.

According to Apple’s release, revenue for the quarter ended September 26 was $114.5 billion, up 12% from a year earlier and a record for a September quarter. Diluted earnings per share were $2.10, up 14%. Gross margin was 47.9%. Full-year revenue was a record $479 billion. Chief executive John Ternus said the company was “closing the year with our most ambitious lineup yet.” The shares had closed about 2% lower before the report, caught up in a broad tech sell-off.

The number that stands out this season: cash

Apple generated about $28 billion in operating cash flow during the quarter and returned about $28 billion to shareholders through dividends and buybacks. In other words, it handed back roughly everything its business produced.

Compare that with last week’s results from the companies building AI infrastructure. Amazon spent $77.3 billion on property and equipment in a single quarter, and its free cash flow over the past year has turned deeply negative. Alphabet’s free cash flow was negative for a second straight quarter, and it bought back no stock. Those reports triggered the sell-off we wrote about in The AI Bill Comes Due.

Apple has taken a different path. It has spent far less on data centres than its peers and kept its cash machine intact. Investors have rewarded that so far: Apple is up about 28% this year, the best performance among the largest US tech companies.

Read the footnote

Before giving Apple too much credit, look at one line in the release. Gross margin included about one percentage point of benefit from tariff refunds, and $0.05 of the $2.10 in earnings per share came from the same source. A refund of duties paid in earlier periods is a one-time gain, not something the business will earn every quarter.

Strip it out and earnings per share were about $2.05, still about 11% growth. That’s healthy, but a little less impressive than the headline. When a company reports a one-off item, the usual practice is to compare like with like: take it out of this quarter’s number before comparing it with last year’s. (Our guide to reading an earnings report covers how to spot these.)

Is restraint a strategy or a risk?

There are two ways to read Apple’s position, and both have merit.

The bull case: Apple owns the device in more than a billion people’s pockets. If AI becomes something people use mainly through phones and computers, Apple can rent capability from whoever builds the best models and capture value at the point of use. It doesn’t need to win a capital-spending race. Meanwhile its shareholders keep getting paid.

The bear case: platform shifts have historically rewarded those who build the platform, not those who wait. If the most valuable AI features end up requiring infrastructure Apple doesn’t own, it could find itself paying partners on their terms. That would squeeze the profit margins that make its cash flow so strong. Bank of America recently dropped Apple from its list of top US ideas, citing possible margin pressure from a staggered iPhone launch. Margins are where any disappointment would show up first.

What it means for investors

Apple’s report sharpens a choice that runs through the whole technology sector right now:

• Companies spending heavily (Alphabet, Amazon, Meta, Microsoft, Oracle) are betting that AI returns will justify enormous investment funded partly by debt and new shares.
• Companies spending lightly (Apple, for one) are betting they can benefit from AI without owning the infrastructure.

Most investors own both groups through index funds, and that’s a reasonable hedge. But it’s worth knowing that the market’s verdict on these strategies is still being written, and it has swung sharply even within a single week.