APPLE received a pair of analyst downgrades, in the latest sign that soft iPhone sales are becoming an increasing concern for investors, as artificial intelligence (AI) fails to act as a hoped-for growth catalyst.
Shares fell 3.2 per cent on Tuesday (Jan 21), closing at its lowest since November amid a rocky start to the year. The stock is down 11 per cent in January, putting it on track for its biggest one-month decline since December 2022. It has dropped 14 per cent from a December peak.
The day erased more than US$110 billion from the company’s market capitalisation, enough for it to close under Nvidia in size for the first time since November. Apple now has a valuation of US$3.35 trillion, compared with US$3.45 trillion for the AI-focused chipmaker.
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 per cent of the analysts tracked by Bloomberg have a bearish rating, while about 63 per cent 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 per cent in China during the December quarter, while global unit sales fell about 5 per cent 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.
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Separately, Loop expects 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 materialise, 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 per cent 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 per cent or even 90 per cent.
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. BLOOMBERG
