By Apple shares AAPL rallied on Wednesday, hitting a record high as investors considered whether Democratic victories in the US midterm elections could benefit the iPhone maker by slowing data centre construction and easing pressure on memory chip prices.
The stock rose more than 6% to an all-time high of $354.33.
The rally came as several AI infrastructure-related stocks, including Nvidia, Micron Technology, Intel and Broadcom, fell on concerns that political opposition to data centre construction could disrupt the industry’s expansion plans.
Investors had largely anticipated Democrats would win the House of Representatives and possibly take control of the Senate.
However, the party’s victory in the Texas gubernatorial race emerged as a particular concern for technology companies.
Democrat Gina Hinojosa, who campaigned for an immediate moratorium on new data centres, defeated incumbent Republican Governor Greg Abbott.
Texas accounts for about 27% of planned data centre capacity in the US, according to Wells Fargo.
Goldman Sachs economists warned that the election results could affect infrastructure investment.
“Democratic wins at the state and local level are likely to lead to short-term data center moratoria, potentially affecting about 45% of planned US data center capacity expansion,” they said.
Apple emerges as a defensive bet amid AI concerns
Evercore ISI analyst Amit Daryanani said Apple offered investors an alternative to technology companies whose growth prospects were closely tied to data centre spending.
“Apple offers a different earnings driver through iPhone mix/pricing and services rather than data-center construction; our work points to resilient demand, with gross-margin recovery and price elasticity the key tests. This is THE name to keep working when investors want to get defensive,” Daryanani said.
Apple has increasingly emerged as an unlikely winner whenever investors have become sceptical about the sustainability of the AI spending boom.
Unlike rivals such as Microsoft, Alphabet, Amazon and Meta, Apple has largely avoided the expensive race to build AI data centres.
That strategy was initially viewed as a disadvantage, raising concerns that the company was falling behind in artificial intelligence.
However, its relatively limited exposure to AI infrastructure investment has become an advantage as investors question the returns on massive technology spending.
Apple shares have gained about 30% this year, outperforming Alphabet, which has declined 8%, and Meta, which is down nearly 3%.
Amazon and Microsoft have posted more modest gains of around 18%-19%.
Cooling memory prices could ease margin pressure
Another potential benefit for Apple is the possibility that a slowdown in data centre construction could cool memory chip prices.
Rising prices for dynamic random-access memory (DRAM) and NAND chips have been a significant headwind for the company, increasing the cost of manufacturing its devices.
Daryanani highlighted the possibility that weaker data centre demand could eventually ease the pressure.
“Memory input inflation (DRAM & NAND) has been a sizable headwind for a host of names in our coverage (AAPL for example, talked about 140bps GM headwind in Dec-qtr due to memory, but also PC names). Could a slowdown in DC buildouts actually temper memory demand and, in a way, help companies that have been impacted by the sizable memory inflation (AAPL is the key one but there are many others)?”
Apple’s latest results underscored the challenge.
The company reported revenue of $114.5 billion and earnings per share of $2.10, both beating Wall Street expectations, but investors remained concerned about its margins.
Gross margin for the three months ended September stood at 47.9%, lower than in the previous quarter.
Apple also forecast a margin of 45%-46% for the following quarter, below analysts’ expectations of 47%.
The company attributed the pressure partly to an “unprecedented” increase in memory prices and costs associated with the rollout of its Siri artificial intelligence assistant.
Daryanani had earlier warned that Apple could face a “choppy” gross-margin environment until memory prices stabilise or decline.
Investors are also watching for evidence that the company can monetise its Siri AI investments.
A moderation in memory costs could therefore provide some relief, although the extent of any benefit will depend on how quickly chip prices respond to changes in data centre demand.
AI disclosure: AI tools assisted with research and drafting of this piece. An Invezz editor reviewed the facts, sources and wording before publication. Any opinions or analysis are Invezz’s, not those of an automated system.
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