Dan Niles Says Apple Was ‘Incompetent’ With AI, So Why Is The Stock at All-Time Highs?

Dan Niles, founder of Niles Investment Management, says Apple’s (AAPL) slow start on artificial intelligence (AI) turned into an accidental advantage, even as he flags valuation risk ahead of its earnings report this week.

Apple’s stock recently reached new all-time highs, hitting a record closing price of $336.91 on July 27. This surge pushed Apple’s market capitalization to roughly $4.93 trillion, allowing it to reclaim the title of the world’s most valuable public company from Nvidia. The company reports fiscal third-quarter results on July 30.

Apple’s AI Delay Was Actually a Lucky Break

Speaking on CNBC’s Squawk on the Street, Niles said Apple avoided the AI spending spree that has hit rivals’ cash flow.

“Sometimes you get lucky for being incompetent,” Niles said, adding that Apple was “horrible” at getting AI onto iPhones.

That weakness now looks like an edge. Alphabet has raised its 2026 capital expenditure (capex) guidance to $195 billion to $205 billion for AI infrastructure. The spending pushed Alphabet’s free cash flow negative in the second quarter, the first such quarter since its 2004 initial public offering (IPO), the process by which a private company first sells shares to the public.

Apple takes a different path. It reportedly pays Google around $1 billion a year to license a custom Gemini model for Siri’s AI upgrade. That fee covers a fraction of what rivals spend building their own AI models from scratch.

Apple briefly passed Nvidia as the world’s most valuable company earlier this month. Its stock has kept climbing since, partly on the view that it can benefit from AI demand without carrying the balance-sheet risk.

The Valuation Catch

Niles was less comfortable with where the stock trades today. Apple’s price-to-earnings (P/E) ratio, a measure of stock price relative to earnings, sits in the high 30s. That’s well above the S&P 500’s roughly 22 times earnings.

He warned that could leave Apple exposed if Thursday’s numbers disappoint, particularly if rising semiconductor prices squeeze margins. Memory chip costs have surged this year, a trend already forcing price hikes across the phone market.

“You can’t put all the money in the world into this one stock because they’re just not spending on AI,” Niles said. “It doesn’t make sense at a certain valuation.”

Wall Street expects Apple to post revenue near $108.9 billion and earnings per share (EPS) of $1.89 for the quarter, up from $1.57 a year earlier. Thursday’s report also lands in the middle of a packed earnings week for Big Tech, with Meta and Amazon reporting the same week under similar AI spending scrutiny.

Niles said he plans to stay largely on the sidelines for those names too, citing his own concerns about capex tied to each.