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As is so often the case, Apple (US:AAPL) is going in a different direction to the rest of the big tech companies. Instead of spending heavily on artificial intelligence (AI) servers to expensively train models, it has decided to keep its costs low and focus on developing a platform that makes it easy for customers to access the technology.
One of the concerns with many of the big tech companies is the scale of their capital expenditure. In their recent results, Microsoft (US:MSFT), Meta (US:META) and Alphabet (US:GOOG) reported a combined $36bn on capex, which was up 63 per cent year on year.
As the Investors’ Chronicle discussed last month ('Big Tech's hidden costs problem'), this spending is already hitting free cash flow, and as the depreciation costs start rising it will create margin headwinds. Our argument was that this would lead to valuation contraction. This appears to already be happening. In the past month, Microsoft’s forward price/earnings (PE) ratio has fallen from 35 to 29, Meta's is down from 25 to 21, and Alphabet's has dropped from 24 to 19.