Apple Is Setting The Stage For a Massive Windfall That Few Understand Alex Sirois Wed, October 7, 2026 at 10:45 AM EDT 4 min read AAPL +0.37% MSFT -0.63% AVGO -0.82% Explore stocks on Coinbase Trading disclosure Trading disclosure The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.
Apple's 2.5B active devices and 1.5B paid subscriptions let it monetize AI without heavy data center spending, fueling a 9th straight EPS beat.
Microsoft's AI infrastructure spending surged 79% to $116B, shrinking free cash flow, while Apple's customers fund AI hardware themselves.
Siri AI awaits EU and China approval, iCloud+ upgrades haven't launched yet, and a $30B Broadcom chip deal gives Apple untapped upside catalysts.
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I added to my Apple (NASDAQ:AAPL) position this month and expect to add more after the October 29 earnings report. The market has misunderstood Apple's AI strategy.
Apple owns the device in your pocket and the relationship with it. The company counts more than 2.5 billion active devices, with iPhone install base at an all-time high in the June quarter. Apple delivers AI to a customer base it already owns, and that base is where the boom comes from.
First, Apple can monetize AI without heavy data center spending. Tim Cook described Siri AI as "a completely reimagined version of Siri that is profoundly capable, deeply personal, and integrated seamlessly across our platforms." It runs on-device and via Private Cloud Compute. Cook called on-device AI "very strategic and sort of a competitive weapon." Paid iCloud+ upgrades sit atop Services revenue of $30.74B last quarter, up from $27.42B a year earlier, with 1.5 billion paid subscriptions.
Second, hardware demand is strong. iPhone revenue reached $54.25B versus $44.58B a year ago. Mac revenue grew 29%. Apple posted EPS of $2.02 against $1.8914 consensus, its 9th consecutive EPS beat.
Third, Apple keeps sending cash back to shareholders. The board authorized an additional $100B buyback, Apple repurchased $62.094B of stock in the nine months through June 27, 2026, and it raised the dividend 4% to $0.27 per quarter. Return on invested capital stands at 53.35%.
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Microsoft (NASDAQ:MSFT) offers a different path to AI exposure. Microsoft's P/E of 29 looks cheaper than Apple's 43, but it is spending heavily on AI infrastructure. Fiscal 2026 capital spending hit $115.948B, up 79.62%, while free cash flow fell 6.46% to $66.987B. Microsoft trades at 59x free cash flow versus 49x for Apple. I prefer the company whose customers pay for AI hardware themselves.
Memory costs worry me. Cook called it "a 100-year flood on the memory pricing with exponential increases in memory prices," with further rises expected. The June quarter's 50.1% gross margin included about two points from tariff refunds worth $0.11 of EPS. Guidance calls for 47% to 48%. Greater China revenue fell to $14.49B from $15.03B.
Apple guided September-quarter revenue growth of 9% to 11%, with supply constraints from demand exceeding forecasts. Analysts expect EPS of $9.5758 for fiscal 2027, up from $8.8202 for fiscal 2026. Cook said: "We look at all three dimensions and think about it over the long term instead of a 90-day clock."
Siri AI awaits regulatory approval in the EU and China. iCloud+ upgrades have yet to launch. Apple's $30 billion-plus Broadcom (NASDAQ:AVGO) silicon deal strengthens chip control, the kind of infrastructure strategy we mapped out in a free report on the AI buildout beyond the chipmakers. Over ten years, shares returned 1179.19%. The market prices Apple as a phone maker that missed AI. I see a company putting AI on 2.5 billion devices.
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