Investing.com — Wall Street analysts downgraded Apple shares this week, sending its shares down more than 2% in premarket trading on Tuesday.
Analysts at Jefferies downgraded Apple Inc (NASDAQ: ) to Underperform from Hold on Monday as they expect the tech giant to miss earnings targets and guidance in its upcoming fiscal first quarter 2025 report.
The firm’s price target for the tech giant’s stock was also cut to $200.75 from $211.84, implying a downside of 13% from its last close.
The bearish expectations come amid weak iPhone sales and a weak outlook for the iPhone 17 and 18 due to “slower adoption and commercialization of artificial intelligence,” analysts said in a note.
They forecast that Apple will fall short of its 5% revenue growth guidance for the first quarter and lead to only low single-digit revenue growth in the second quarter, also below consensus.
Jefferies cut its forecast for iPhone shipments from 1% growth to a 2% decline for the first quarter of fiscal 2025, based on data showing a roughly 4% year-over-year decline in iPhone shipments during the period, according to the International Data Corporation (IDC).
iPhone sales in China were reported to have dropped significantly during the same quarter, while international markets may see marginal growth. Furthermore, the outlook for other Apple products such as the iPad and MacBook is bleak due to the overall weakness of the consumer electronics market.
The downgrade on Apple shares also reflects concerns over guidance for the March quarter, which analysts believe could disappoint investors. Despite optimism about demand in China due to government subsidies, the new policies will limit those subsidies, effectively shutting down most iPhone models.
“We also believe that demand for the SE4 may be weaker than expected, as it is likely to compete not so much with Android or iPhone 14/15, but with the used iPhone 13/14 P/PM,” noted analysts led by Edison Lee.
“We don’t think consumers will be attracted to the SE4 thanks to Apple Intelligence, especially in China,” they added.
What’s more, the Jefferies team suggests that the near-term outlook for smartphone AI is dim, as third-party research shows that US consumers don’t find smartphone AI particularly useful.
Industry checks also raise the possibility of delays in Apple’s advanced packaging plan, which is critical to improving AI capabilities on the iPhone. This uncertainty is attributed to the slower monetization of AI, which could dampen expectations of a significant AI-driven upgrade cycle.
“Even if the iPhone has new form factors in the next 2 years, volume growth is likely to be slower if AI takes longer to materialize,” the analysts explained.
In light of these factors, they cut their earnings per share (EPS) forecasts for Apple by 2% to 23% over the next three years, with fiscal 2025 (FY25) and FY26 EPS estimates now approximately 4% below consensus.
Separately, analysts at Loop Capital also cut their rating on Apple shares to Hold from Buy, citing expectations of a “significant decline in iPhone demand” starting in the March quarter, but “materially stronger” in the June and September quarters.
“As such, while the basis of our 7/15/24 structural buy call could still materialize, the timing remains unclear now, and it certainly won’t be the next nine months given that we’re at the start of 2.5 quarters of significantly dampening iPhone demand.” , Loop analyst Ananda Baruah added.
