Jefferies downgraded Apple Inc (NASDAQ:AAPL, ETR:APC). (AAPL) to 'hold' and cut its price target to $212.92, citing unrealistic iPhone 16 expectations and the stock’s near-record valuation.
Digging deeper, the US bank warned that excitement over Apple’s next iPhone cycles, particularly the iPhone 16 and upcoming iPhone 17, is premature.
It further cautioned, that while Apple has developed advanced artificial intelligence (AI) features for its devices, the hardware required to fully support sophisticated AI functions is still years away.
In a research note, the American investment bank said it expects that true AI-enabled smartphones will not be available until 2026 or 2027, when more advanced technology, including specialised memory and high-speed connections, can be incorporated.
As a result, Jefferies is forecasting only modest unit growth in sales of the newly-launched Apple smartphone.
Apple’s dependence on iPhone sales remains a key. Despite its efforts to diversify into services, the iPhone still accounted for 52% of the company’s revenue in fiscal year 2023.
Jefferies anticipates this reliance on this product line will persist, with smartphone sales continuing to drive adoption of other Apple products, like AirPods and iPads, and boost service revenue.
While analysts remain optimistic about Apple’s long-term potential in AI, particularly its ability to offer integrated hardware and software AI solutions, they believe the stock’s current valuation is too high given near-term challenges.
They also highlighted that Apple’s price-to-earnings ratio for fiscal year 2024 is close to historical highs, which, combined with the lack of significant positive catalysts in the short term, would negate the more cautious view.
Ahead of the bell, Apple stock was down 1% at $224.65.