Apple's AI Ambitions Face Skepticism as Jefferies Downgrades Stock

Apple Dips as Jefferies Says Hopes for AI Phone Are Overblown

"The high expectations for iPhone 16/17 are premature," as "a lack of material new features and limited AI coverage mean high market expectations (5%-10% unit growth) are unlikely to be met," wrote Jefferies analyst Edison Lee, who assumed coverage of the stock with a hold rating. The firm previously had a buy rating. Shares of Apple have rallied around 36% from their April low, with much of the gain reflecting optimism that the AI features will drive consumers to upgrade their phones, re-accelerating revenue growth. But the early signs indicate demand have been mixed. Lee said he recognizes the long-term potential in AI, seeing Apple as "the only hardware-software integrated player that can leverage proprietary data to offer low-cost, personalized AI services." However, he said the current valuation is "rich" and that AI won't be a driver in the near-term. "Smartphone hardware needs rework before being capable of serious AI," and that has a "likely timeline of 2026/27." Wall Street is more cautious on Apple than some other big tech companies. Just 65% of analysts recommend buying the stock, compared with ratios near or above 90% for Microsoft Corp., Nvidia Corp. and Amazon.com Inc.

Apple Dips as Jefferies Says Hopes for AI Phone Are Overblown

Apple Inc. shares fell over 1% after a Jefferies analyst said investors have overly optimistic expectations for the company's latest iPhones, the first to come with artificial-intelligence tools. "The high expectations for iPhone 16/17 are premature," as "a lack of material new features and limited AI coverage mean high market expectations (5%-10% unit growth) are unlikely to be met," wrote Jefferies analyst Edison Lee, who assumed coverage of the stock with a hold rating. The firm previously had a buy rating.

Apple shares tick lower as Jefferies cuts rating on rich valuation By Investing.com

Investing.com -- Shares in Apple (NASDAQ:AAPL) fell 1.5% in premarket trading Monday after Jefferies analysts cut their rating on the stock from Buy to Hold. The investment bank set a price target of $212.92 on Apple, suggesting a potential downside of around 6% from the last closing price. The downgrade comes as Jefferies analysts raise concerns about the overestimated market expectations for the upcoming iPhone 16 and 17 models. More concretely, the tech giant's heavy reliance on iPhone sales, which accounted for 52% of the company's revenue in fiscal year 2023, was highlighted as a key factor for the revision. The analysts believe that the market's anticipation of 5%-10% unit growth for the new iPhone models is unrealistic due to a lack of significant new features and limited AI capabilities. Initial demand for the iPhone 16 is projected to be weaker than expected, with forecasts indicating flat volume growth for the second half of calendar year 2024 compared to the iPhone 15, and only a 2.5% growth in lifecycle volume for the iPhone 16. The report also casts doubt on the near-term impact of AI technology in smartphones, suggesting that AI-capable smartphone technology is "likely 2-3 years away." The current limitations in high-speed memory and advanced packaging technology in smartphones restrict their AI capabilities. "To expect an accelerated smartphone replacement cycle now due to AI is premature, in our view," Jefferies analysts wrote. However, Apple is expected to introduce a new, thinner iPhone model, dubbed the "17 Air," in 2025, which could stimulate upgrade demand. Jefferies remains bullish about Apple's long-term AI capabilities, acknowledging the company as "the only hardware-software integrated smartphone player." By the fourth quarter of fiscal year 2026, Apple is estimated to have 490 million AI-capable iPhones in use, with the number potentially rising to 845 million by fiscal year 2027. Apple's OpenELM model and another language learning model, Ferret-UI, are expected to reinforce its leadership in mobile AI technology. "We believe AAPL is the leader in mobile AI tech, and its chip-OS-AI integrated ecosystem puts it far ahead of the fragmented Android competition," analysts noted. The investment firm also highlights Apple's strategic partnership with Taiwan Semiconductor Manufacturing (NYSE:TSM), which gives Apple a long-term technological and cost advantage. This collaboration is anticipated to help Apple expedite the commercialization of AI-enabling technologies and secure lower costs for advanced nodes in comparison to its competitors. On valuation, Jefferies notes that while Apple's stock appears elevated in the near term, especially with fiscal year 2024 earnings projections falling below consensus, there is potential for long-term upside driven by AI-related fee income. Apple's fiscal year 2026 earnings are expected to surpass consensus, and the firm's upside valuation is based on the possibility of Apple charging a monthly fee for AI services, with a target of $306.99.

Apple stock downgraded as Jefferies questions near-term iPhone expectations By Investing.com

On Monday, Jefferies, a global investment banking firm, downgraded Apple Inc (NASDAQ:AAPL). stock from a Buy to a Hold rating, while slightly raising the price target to $212.92 from $205.00. The firm cited concerns about the upcoming iPhone's capabilities in artificial intelligence (AI) as a reason for the more cautious stance. The analyst from Jefferies highlighted Apple's unique position as the sole hardware-software integrated player capable of leveraging proprietary data to offer personalized AI services at a low cost. Despite this advantage, the analyst believes that Apple's smartphone hardware requires significant rework to be seriously capable of AI, with such advancements not expected until around 2026 or 2027. According to the analyst, the high market expectations for the iPhone 16 and 17 models are considered premature. Jefferies' forecast for Apple's fourth-quarter fiscal year 2024 net profit falls below the consensus, and the firm notes that Apple's current adjusted price-to-earnings ratio for fiscal year 2024 is near its all-time high. The report also points out that the iPhone remains central to Apple's business model, having contributed to 52% of the company's fiscal year 2023 revenue. It also drives the adoption of other Apple devices and services revenue growth. However, Jefferies anticipates that the lack of significant new features and limited AI capabilities in upcoming models may lead to not meeting the high market expectations of 5%-10% unit growth. Jefferies' analysis predicts weaker-than-expected initial demand for the iPhone 16, forecasting flattish volume growth compared to the iPhone 15 for the second half of the calendar year 2024. For the entire lifecycle of the iPhone 16, the firm expects only a 2.5% growth in volume. In other recent news, Foxconn (SS:601138), a major assembler for Apple Inc's iPhones, reported a significant 20.2% increase in its Q3 revenue, surpassing initial forecasts. This growth is seen as an indicator of demand for Apple's products. In the meantime, Evercore ISI maintained its Outperform rating for Apple, citing stable demand for the new iPhone 16 and 16 Pro models. They also highlighted a 14% growth in App Store revenues, which is expected to contribute to Apple's Services revenue growth. Mizuho analysts have noted that Apple's focus on artificial intelligence (AI) services could drive demand for various iPhone 16 components, potentially influencing the value chain. BofA Securities, maintaining its Buy rating on Apple, suggested that the initial demand for new iPhone models may surge once AI features become available. In addition to these financial developments, Apple is preparing for the production of a new iPhone SE and iPad Air models. However, the National Labor Relations Board (NLRB) has filed a complaint against Apple, alleging the company of implementing illegal workplace rules. Lastly, a recent fire at a Tata Group facility in Tamil Nadu, which has halted the production of iPhone components, might disrupt Apple's supply chain. As we consider Jefferies' downgrade of Apple Inc., it's worth examining some key financial metrics and insights from InvestingPro to provide a more comprehensive view of the company's current position. According to InvestingPro data, Apple's market capitalization stands at an impressive $3.45 trillion, reflecting its dominant position in the technology sector. The company's P/E ratio of 34.15 aligns with Jefferies' observation that Apple is trading at a high earnings multiple. This valuation metric suggests that investors are pricing in significant growth expectations, which may be challenging to meet given the concerns raised about AI capabilities in upcoming iPhone models. InvestingPro Tips highlight that Apple has raised its dividend for 12 consecutive years, indicating a strong commitment to shareholder returns. This consistent dividend growth, coupled with a current dividend yield of 0.44%, may provide some support for the stock even as growth expectations are recalibrated. Another relevant InvestingPro Tip notes that Apple is trading near its 52-week high, with a price that is 95.6% of its peak. This high valuation, combined with Jefferies' concerns about future iPhone capabilities, underscores the importance of carefully evaluating the company's growth prospects. For investors seeking a deeper understanding of Apple's financial health and market position, InvestingPro offers 14 additional tips, providing a more comprehensive analysis to inform investment decisions.

Analyst unveils Apple stock rating as iPhone 16 demand issue linger

Apple shares moved lower in early Monday trading after a top Wall Street analyst issued a rare downgrade for the tech giant, citing concerns that its new push into artificial intelligence will be slowed by muted handset demand. Apple (AAPL) , which unveiled its version of AI, dubbed Apple Intelligence, in early June, is looking to leverage its dominance in the smartphone market to drive consumer demand for the new technology. The tech giant launched its latest version of its signature iPhone in September, and promised to rollout AI-powered features over the coming months. Early reports, however, show overall demand for the iPhone 16 remains muted compared to previous launches, while rival smartphones from both Samsung and China-based rivals are taking larger chunks of sales from key markets in Asia. Some analysts, however, see the new iPhone 16, and the likely-improved iPhone 17, driving an upgrade 'supercycle' that will boost handset sales and accelerate the take-up of Apple Intelligence technologies. Apple is reportedly set to unveil its first Apple Intelligence features later this month, with the launch of its new iOS 18.1 operating system on Oct. 28, giving iPhone 16 and iPhone 15 and iPhone 15 Pro users who update their software first access. Jefferies analyst Edison Lee, who assumed coverage of Apple this week, isn't one of them; he thinks near-term expectations for iPhone sales are "too high (and) a lack of material new features and limited AI capabilities mean high market expectations (5%-10% unit growth) are unlikely to be met." AI rollouts will take time Lee lowered Jefferies' rating on Apple to 'hold' from 'buy', a put a $212.962 price target in place, citing the stock's rich valuation of 33 times earnings and the long timeframe for AI rollouts. "We like Apple Intelligence long term, as Apple is the only hardware-software integrated player that can leverage proprietary data to offer low-cost, personalized AI services," Lee said. "However, smartphone hardware needs rework before being capable of serious AI, likely by 2026/27." Related: Apple has an iPhone 16 problem Still, Lee argues that Apple has a longer-term advantage in terms of tech and cost development over its Android-based competitors, particularly given its partnership with chipmaker Taiwan Semiconductor, and sees next year's iPhone 17 as ultimately driving stronger sales growth. More AI Stocks: "We believe AI-capable smartphone tech is likely 2-3 years away due to limitations in high-speed memory and advanced packaging tech," he said. "[But] Apple's thin model (17 Air) in 2025 could attract more upgrade demand." Related: Analysts question iPhone 16 demand pace as Apple stock extends slide Apple is scheduled to report its fourth quarter earnings on Oct. 31, with early estimates suggesting earnings of around $1.60 a share on revenue of $94.4 billion. Apple shares were last marked 1.1% lower in premarket trading to indicate an opening bell price of $224.26 each, a move that would trim the stocks one-month gain to around 1.5%. Related: The 10 best investing books, according to our stock market pros