As investor skepticism towards AI trades deepens, Apple's status as an "anti-AI" play had fueled a strong share price rally in the first half of the year. However, that sentiment has now flipped, leaving the tech giant's stock struggling. Since closing at a record high on July 28, Apple's shares have tumbled roughly 10% following a disappointing earnings outlook from the iPhone maker.

Meanwhile, investors are rotating back into stocks perceived as AI winners. Strong results from Microsoft, Amazon, and Alphabet Inc. have eased worries about excessive spending on AI technology, lifting shares of the biggest AI spenders, chipmakers, and other firms benefiting from related investments.

"Throughout the year, the market's attitude toward capital expenditure has swung between concern and optimism. July was almost entirely about worrying over capex, but the latest earnings have clearly eased some of that anxiety, sparking this rotation," said Jordan McCall, a senior portfolio manager at Russell Investments, which manages $418 billion in assets. "Now the market is more comfortable with capital spending, and Apple remains an alternative way to bet on the AI capex cycle. I expect this seesaw pattern to continue."

Apple has opted to lean on partners to support its AI services, avoiding the costly race to build out computing infrastructure. Over the past three weeks, Apple has been among the 25 worst-performing stocks in the S&P 500. In contrast, the rest of the tech sector has moved in the opposite direction, with the Nasdaq 100 climbing 6.6% and the Philadelphia Stock Exchange Semiconductor Index (SOX) surging 10% over the same period.

This marks a stark reversal from July, when Apple shares rose 6.8% while the Nasdaq 100 fell 6.6% and the semiconductor index plunged 21%—its worst monthly drop since 2008—as investors questioned how long massive AI spending could last. The sharp swings in Apple's stock underscore how its trajectory is increasingly decoupling from the broader market. Apple's 40-day correlation with the S&P 500 is now essentially zero, the lowest since 2013, while its correlation with the chip index has fallen to its lowest since data began in 1994 and has recently turned negative, meaning Apple shares often move inversely to semiconductor stocks.

That trend continued on Tuesday, with Apple edging up 0.4% while the SOX index dropped 3.8% and the Nasdaq 100 fell 1.4%. "It's reasonable that Apple shares aren't perfectly in sync with the AI infrastructure supply chain, and sometimes the negative correlation can weigh on Apple's performance," said Clayton Allison, a portfolio manager at Prime Capital Financial, which manages about $50 billion in assets and holds Apple stock. "But right now, the AI trade is booming, and we can't say Apple is enjoying the same tailwinds as other companies."

In fact, the flood of capital into computing infrastructure is directly hurting Apple by driving up costs for components used in its devices and tightening supply for some parts. Amid surging demand from data centers, memory chip prices have climbed sharply. Estimates suggest memory chips account for roughly 10% to 20% of a smartphone's manufacturing cost. With memory chip costs expected to stay elevated for an extended period, investors worry that rising expenses could squeeze profit margins or dampen demand, especially if Apple raises iPhone prices. Apple has already increased prices on other products, including iPads and Mac computers.

This issue is particularly pressing given Apple's anticipated launch of a foldable iPhone next month. Last week, Jefferies cited iPhone price hike risks when downgrading Apple's stock to "underperform." The number of analysts giving Apple an equivalent of a "sell" rating is growing. Of the 58 analysts tracked by Bloomberg covering Apple, six now recommend selling, the highest count in nearly two years.

The bigger challenge is that Apple's valuation is already stretched, leaving little room for error. Apple currently trades at 32 times forward earnings, the richest valuation among the seven most valuable U.S. tech companies, a group that also includes Nvidia, Broadcom, and Meta Platforms Inc. Apple's revenue is expected to grow 15% in the current fiscal year, the fastest pace since 2021. However, that still falls well short of market expectations for growth in the S&P 500 tech sector. According to Bloomberg-compiled analyst estimates, Apple's revenue growth is projected to slow in each of the following two fiscal years.

Despite the high valuation and lingering questions about where the next phase of revenue growth will come from, Prime Capital's Allison still finds the stock attractive. "From a solid balance sheet, ecosystem, and share buybacks, Apple remains one of the best companies out there," he said. "If the AI trade reverses again, as it has already done this year, Apple's lack of correlation with the market could work in its favor, helping to cushion downside pressure."