Apple Is Holding Strong While Big Tech Sells Off. Is It Next?

The tech sector has had a rough few weeks. Many stocks are down significantly from their all-time highs, but there's one that is holding strong: Apple (NASDAQ: AAPL). The reason? Apple isn't spending big on AI. While it's doing some work in this sector, it's choosing to use other companies' technology, such as using Google Gemini as the base for Siri AI. While this may cost a certain amount per device or per use, it's much cheaper than Apple developing its own AI model, which would require investing hundreds of billions of dollars in computing resources to train and run.

This is exactly why the market loves Apple stock right now. It's viewing Apple like the adult in the room because it's staying the course while the tech world around it is spending trillions.

But can Apple hold on during this tech sell-off? Let's take a look.

Image source: The Motley Fool.

There's one problem I'm eyeing with Apple stock right now

Another factor as to why Apple is holding strong is that its business has been improving. For several years, Apple was struggling to deliver any meaningful revenue growth, and its growth lagged the rate of inflation. That's no longer the case, although it did take a slight dip on its most recent results.

AAPL Revenue (Quarterly YoY Growth) data by YCharts

Still, that's greater than 10%, which usually translates into market-beating growth. However, there's one item investors should be concerned with: Apple's valuation.

With many tech investors fleeing tech stocks heavily associated with AI, Apple's valuation has gotten quite expensive. Apple now trades at some of the highest valuation levels seen over the past two decades.

AAPL PE Ratio data by YCharts

That doesn't bode well for future returns, and if the market warms back up to AI stocks, Apple could be the first place investors sell shares to raise capital to deploy in AI stocks. This could be shaping up a precarious situation for Apple stock, but it's unknown when an event like that could happen.

If the market remains skeptical about AI spending for a while, Apple stock will stay strong. But as soon as the market views AI stocks more favorably, Apple's valuation could be in trouble, as its valuation is significantly higher than many in the tech space. The best example is Nvidia. Nvidia is growing at a lightning-fast pace and is projected to do so again in 2027. However, it trades at just 23 times trailing earnings. While there have been some non-business-related news stories surrounding Nvidia that have affected it recently, the business is still quite strong.

Once the market gets past what's going on, Apple stock could be the first to sell off if a rotation does occur. As a result, I believe investors need to be prepared for some heavy selling pressure in Apple in the near future.

Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool has a disclosure policy.