Apple Inc. received a pair of analyst downgrades, in the latest sign that soft iPhone sales are becoming an increasing concern for investors, as artificial intelligence fails to act as a hoped-for growth catalyst.
Shares fell 3.2% on Tuesday, extending what has been a rocky start to the year for the world’s largest company by market capitalization. The stock is down 11% in January, putting it on track for its biggest one-month decline since December 2022. It has dropped almost 14% from a December peak.
The company was downgraded to hold at Loop Capital and cut to underperform at Jefferies, which became a rare firm with the equivalent of a sell rating on the stock. Just 8.5% of the analysts tracked by Bloomberg have a bearish rating, while about 63% have the equivalent of a buy.
Jefferies analyst Edison Lee writes that recent weakness in iPhone sales has been worse than expected, with the China market a particular concern. Independent research indicates that iPhone sales sank 18.2% in China during the December quarter, while global unit sales fell about 5% in the final quarter of last year amid higher China competition.
Citing a third-party survey, Lee added that “US consumers do not yet find smartphone AI useful,” meaning that it is “unlikely to kickstart a super upgrade cycle anytime soon.” Given these trends, he wrote, Apple’s March quarter guidance could disappoint.
Concurrently, Loop also cite concerns on iPhone weakness, expecting a “material iPhone demand reduction” beginning in the March quarter “but materially amplifying” in the subsequent two quarters. While the drivers of the firm’s former buy rating could still materialize, analyst Ananda Baruah wrote, “it certainly won’t be for the next nine months given we’re on the front end of 2.5 Q’s of materially softening iPhone demand.”
Apple is scheduled to report its first-quarter results next week.
With the downgrades, Apple’s recommendation consensus — a proxy for the ratio of buy, hold, and sell ratings — stands at 4.02 out of five, its lowest since May, and down from an August peak of about 4.3. Just over 60% of the analysts tracked by Bloomberg recommend buying the stock, a rate well below other megacap tech stocks, where the percentage of buy ratings tops 80% or even 90%.
MoffettNathanson downgraded the stock earlier this month, citing concerns in China and the stock’s valuation.
Also on Monday, Morgan Stanley named Seagate Technology its top pick among IT hardware names, replacing Apple.
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