Apple faces risk from memory cost spike in 2026: MoffettNathanson's Moffett

Key Concepts

• Mag-7: Refers to the seven largest publicly traded companies in the US tech sector (typically Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta).
• AI Infrastructure: The hardware and software systems required to develop, deploy, and run artificial intelligence applications.
• Services Revenue: Revenue generated by Apple from non-hardware offerings like Apple Music, iCloud, Apple TV+, etc.
• On-Device AI vs. Cloud-Based AI: The distinction between processing AI tasks directly on a device (like an iPhone) versus utilizing remote servers (the cloud).
• Defensive Stock: An investment that tends to hold its value relatively well during market downturns.

Apple’s 2026 Outlook: A Focus on Services and Defensive Positioning

Introduction

This discussion centers on Apple’s stock performance outlook for 2026, particularly in relation to its peers within the “Mag-7” group of large tech companies. Craig Moffett from Moffett Nathanson provides analysis, shifting the focus away from initial expectations of an AI-driven iPhone upgrade cycle and towards the importance of Apple’s Services revenue and its role as a relatively safe investment.

Shifting Expectations & The Role of Services

Initially, there was anticipation that advancements in Artificial Intelligence (AI) would spur a significant upgrade cycle for iPhones, driven by the need for more capable devices with enhanced memory and neural processors. However, Craig Moffett argues this narrative has lost traction. He notes that Apple’s stock lagged in 2025 due to various risks, leading to a downgrade to a “neutral” rating. Currently, the stock is considered fairly valued.

Moffett emphasizes that the key to Apple’s future performance lies in the growth of its Services revenue. He believes a “giant supercycle of iPhones” is unlikely, and the company’s strength lies in its consistent execution rather than relying on a hardware-driven AI boom. “The swing factor might actually just be Services,” he states, highlighting the general growth of this revenue stream as more crucial than hardware or AI specifically.

AI Investment & Relative Performance

The conversation addresses Apple’s comparatively lower investment in AI infrastructure as a percentage of revenue compared to other Big Tech companies. This is attributed to Apple’s unique position – arguably, they don’t need to invest as heavily because of their existing ecosystem and approach to AI.

Moffett contends that Apple’s relative performance in 2026 will be less about how well Apple does and more about how well the rest of the Mag-7 performs in the context of ongoing AI optimism. He posits that Apple will underperform during market pullbacks but will be the most defensive stock within the Mag-7, acting as a “safety choice” due to its lower capital intensity and reduced reliance on the AI narrative. “Apple is seen as the safe choice,” he asserts.

The Evolution of the AI Opportunity for Apple

The discussion delves into the changing landscape of AI processing. Eighteen months ago, the assumption was that Apple’s AI capabilities would primarily be on-device, requiring more powerful hardware and driving upgrades. However, the trend is shifting towards cloud-based AI processing, mirroring the approach of companies like OpenAI (ChatGPT), Anthropic (Claude), and Google (Gemini).

This shift means Apple is becoming less of an outlier. While AI will still function on Apple devices, the need for constant hardware upgrades driven solely by AI capabilities is diminishing. Moffett explains that this change doesn’t necessarily negate the AI opportunity for Apple, but it alters the dynamics and reduces the expectation of a massive hardware upgrade cycle.

Logical Connections & Data Points

The conversation flows logically from an initial assessment of Apple’s 2025 performance to a forward-looking analysis of its 2026 prospects. The argument builds by first dismissing the initial AI-driven upgrade cycle narrative, then highlighting the importance of Services revenue, and finally positioning Apple as a defensive play within the Mag-7. The discussion consistently frames Apple’s performance relative to its peers, emphasizing that its success is intertwined with the broader market sentiment surrounding AI.

Notable Quote

“Apple is seen as the safe choice. So the biggest determinant of what Apple’s relative performance is going to be is not how well Apple does, it’s how well the rest of the Mag-7 does in a big rally for or continued rally for AI.” – Craig Moffett

Conclusion

The key takeaway is that Apple’s stock performance in 2026 is likely to be driven more by the overall health of the tech market and the success of its Services business than by a revolutionary AI-fueled hardware cycle. Investors should view Apple as a relatively safe and stable investment within the volatile landscape of Big Tech, particularly in relation to companies more heavily reliant on the uncertain trajectory of AI infrastructure investments. The focus should shift from anticipating a hardware “supercycle” to monitoring the consistent growth of Apple’s Services revenue.