Apple shares fall as Jefferies downgrades Investing.com’s rich rating

Investing.com — Shares of Apple (NASDAQ: ) fell 1.5% in pre-market trading on Monday, after analysts at Jefferies cut their rating on the stock from Buy to Hold. The investment bank set a $212.92 price target on Apple, suggesting a potential downside of around 6% from the last close.

The downgrade comes as Jefferies analysts raise concerns about overstated market expectations for the upcoming iPhone 16 and 17 models. Specifically, the tech giant’s heavy reliance on iPhone sales, which accounted for 52 percent of the company’s revenue in fiscal 2023 , was highlighted as a key factor for review.

Analysts believe that the market anticipation of 5%-10% unit growth for the new iPhone models is unrealistic due to the lack of significant new features and limited AI capabilities. Initial demand for the iPhone 16 is expected to be weaker than expected, with forecasts pointing to flat volume growth for the second half of calendar year 2024 compared to the iPhone 15 and only 2.5% lifecycle volume growth for iPhone 16.

The report also questions the short-term impact of AI technology on smartphones, suggesting that AI-capable smartphone technology is “probably 2-3 years away”. Current high-speed memory limitations and advanced smartphone packaging technology restrict their AI capabilities.

“In our view, expect an accelerated smartphone replacement cycle due to AI,” Jefferies analysts wrote.

However, Apple is expected to introduce a new, thinner iPhone model dubbed the “17 Air” in 2025, which could boost demand for the upgrade.

Jefferies remains bullish on Apple’s long-term AI capabilities, recognizing the company as “the only hardware-software integrated smartphone player.”

By the fourth quarter of fiscal year 2026, Apple is expected to have 490 million AI-capable iPhones in use, and the number could rise to 845 million by fiscal year 2027. Apple’s OpenELM model and another model of language learning, Ferret-UI, are expected to strengthen their leadership in mobile AI technology.

“We believe AAPL is a leader in mobile AI technology, and its integrated chip-OS-AI ecosystem places it well ahead of the fragmented Android competition,” the analysts noted.

The investment firm also points to Apple’s strategic partnership with Taiwan Semiconductor Manufacturing (NYSE: ), which gives Apple a long-term technological and cost advantage. This collaboration is expected to help Apple accelerate the commercialization of AI-enabling technologies and ensure lower costs for advanced nodes compared to its competitors.

In terms of valuation, Jefferies notes that while Apple shares appear bullish in the short term, particularly with fiscal 2024 earnings forecasts falling below consensus, there is long-term upside potential driven by fee income related by AI.

Apple’s fiscal 2026 earnings are expected to beat consensus, and the company’s upside is based on the possibility of Apple charging a monthly fee for AI services, with a target of $306.99.