Jefferies analyst Edison Lee downgraded the investment bank's rating on Apple's (AAPL) stock to Underperform and dropped its price target 13% to $200.75 on Monday. Loop Capital also downgraded Apple stock from Buy to Hold, with a revised price target of $230, down from $275.
In an investor note, Lee said he expected Apple to report lower-than-expected results for its December quarter and miss expectations for the second quarter on weak iPhone sales and a lack of interest in AI among consumers.
Apple shares fell as much as 3.7% midday on Tuesday. The stock has increased by 16% over the past 12 months. competitors of Big Tech Meta (META) and the Alphabet (GOOG, GOOGLE) up some 36% and 30%, respectively, over the past year, while Microsoft (MSFT) only up 3.5%. The broader S&P 500 has climbed 20% in the same period.
According to Lee, iPhone sales in China fell between 15% and 20% year over year. Apple is grappling with a number of headwinds in the region, including the continued rise of local offerings from Huawei and Xiaomi and cautious consumer spending amid a slower economic backdrop.
Apple isn't just dealing with trouble in China. Overall iPhone market share fell about 1% year-on-year in Q4 to 23%, according to estimates from Canalys and IDC. That's despite smartphone shipments rising by 3%, Canalys Reports.
Jefferies predicts iPhone revenue will decline 0.4% year-on-year for the first quarter, while Apple's total sales will grow 2.8%, which is lower than the company's previous estimate of 4.6%.
Part of Apple's issue, Lee argues, is that the company's big push into AI isn't panning out as investors had hoped. Apple Intelligence, Apple's artificial intelligence platform for the iPhone, iPad, and Mac, was expected to start a sales supercycle. But if IDC and Canalys' estimates are correct, it will throw cold water on AI's sales boost.
Apple began rolling out Apple Intelligence in batches in October. It's a risky move for Apple, which generally shows off its latest and greatest products and services at one time through big, splashy launch events. That makes it difficult for customers to know when the platform will include all the capabilities that Apple initially promised when it first broadcast Apple Intelligence in June 2024.
AI smartphones and their AI computer counterparts are struggling to gain traction despite huge sales boosts from tech giants ranging from Apple and Google to Microsoft and Intel.
Apple's iPhone is its most important product, and China is among its most important sales regions. In 2024the iPhone accounted for $201.1 billion of Apple's $391 billion in total revenue. The company's second-largest business segment, its Services division, brought in $96.1 billion.