Investing.com — Wall Street analysts downgraded Apple stock this week, sending its shares down more than 2% in pre-market trading Tuesday.
Jefferies analysts lowered their rating on Apple Inc (NASDAQ:) shares from Underperform to Hold on Monday as they expect the tech giant to miss both its earnings and guidance targets in its next fiscal report for the first quarter of 2025.
The firm’s price target on the tech giant’s shares was also reduced from $211.84 to $200.75, implying a 13% decline from the last closing price.
The bearish expectations come amid weak iPhone sales and a gloomy outlook for the iPhone 17 and 18 due to “slower adoption and commercialization of AI,” analysts said in a note .
They predict that Apple will fail to meet its 5% revenue growth forecast for the first quarter and will only aim for low single-digit revenue growth in the second quarter, also below consensus.
Jefferies reduced its forecast for iPhone shipments from 1% growth to a 2% decline for the first quarter of fiscal 2025, based on data showing a decline of about 4% from a year-over-year iPhone shipments during this period, according to the International Data Corporation (IDC).
iPhone sales in China during the same quarter reportedly declined significantly, while international markets may see marginal growth. Additionally, the outlook for other Apple products such as iPads and MacBooks is bleak due to general weakness in the consumer electronics market.
Apple’s stock decline also reflects concerns over March quarter guidance, which analysts say could disappoint investors. Despite optimism about demand in China due to government subsidies, new policies will limit these subsidies, effectively excluding most iPhone models.
“We also think demand for the SE4 could be weaker than expected, as it likely won’t compete so much with Android or the iPhone 14/15, but with the iPhone 13/14 P/PM used,” the analysts noted led by Edison Lee.
“We do not believe consumers would be attracted to SE4 through Apple Intelligence, particularly in China,” they added.
Additionally, the Jefferies team suggests that the near-term outlook for AI in smartphones is moderate, as an independent survey indicates that U.S. consumers do not find smartphone AI particularly useful.
The industry checks also raise the possibility of delays in Apple’s advanced packaging roadmap, which is crucial to improving AI capabilities on the iPhone. This uncertainty is attributed to slower monetization of AI, which could dampen expectations of a significant AI-driven upgrade cycle.
“Even if the iPhone adopts new form factors in the next two years, volume growth will likely be slower if AI takes longer to materialize,” the analysts said.
In light of these factors, they reduced its earnings per share (EPS) forecast for Apple by 2% to 23% over the next three years, EPS estimates for fiscal 2025 (FY25) and fiscal 26 now being around 4% below consensus.
Separately, analysts at Loop Capital also lowered their rating on Apple shares from Hold to Buy, citing expectations of a “material reduction in iPhone demand” from the March quarter but an “amplification significant” during the June and September quarters.
“As such, while the underpinnings of our July 15, 2024 structural purchase call may yet come to fruition, the timeline remains unclear at this time, and certainly will not be the case for the next nine months given that we are approaching 2.5″. quarters of significant slowdown in iPhone demand,” added Ananda Baruah, analyst at Loop.
