Apple shares downgraded by Jefferies, says ‘seriously AI’ smartphones 2 years away

Apple ( AAPL ) was dismissed by investment firm Jefferies ( JEF ) on Sunday night. Jefferies analyst Edison Lee downgraded Apple shares from Buy to Hold, citing concerns over inflated expectations for its new AI-enabled iPhones.

Lee said that smartphone hardware is not yet advanced enough to accommodate the kind of high-tech artificial intelligence that iPhone analysts and consumers are hoping for.

“Short-term expectations for iPhone 16 and even 17 are too high,” Lee wrote in a note to investors late Sunday.

Big Tech companies have struggled to innovate generative artificial intelligence technologies and secure their position in an AI-dominated market. Until this summer, Wall Street worried whether Apple could catch up to rivals like Google ( GOOG ) and Microsoft ( MSFT ), which have rushed to release new chatbots and AI chips, while Apple CEO Tim Cook remained tight-lipped about the iPhone maker’s plans for AI. . Now that Apple has set its AI vision in motion with the upcoming release of Apple Intelligence, its next hurdle — like its competitors — is proving it can monetize those AI plans.

Apple shares were down 0.9% on Monday morning.

“Unlike AI servers, smartphones lack high-speed memory and advanced packaging technology to enable fast data transfer between AP and memory, thus limiting their AI capabilities,” Lee said, adding, “Our waiting now for an accelerated smartphone replacement cycle thanks to AI is premature, in our view.”

Lee said it will take another two to three years for manufacturers like Apple to create smartphone hardware capable of running AI software smoothly.

Apple unveiled its suite of artificial intelligence tools, called Apple Intelligence, at its Worldwide Developers Conference in June. Apple’s long-awaited debut in artificial intelligence, along with the unveiling of a partnership with OpenAI, boosted the stock to record highs. It more than eased investors’ worries about Apple’s barrage of bad news at the start of the year — from iPhone sales and layoffs to run-ins with antitrust regulators at home and abroad. Bank of America (BAC) analyst Wamsi Mohan has predicted a future where Apple’s AI-enabled “smartphones” dominate the market.

But Apple’s initial release of its iPhone 16, equipped with hardware to run Apple Intelligence features that begin rolling out this month, has so far disappointed Wall Street. Analysts say demand for Apple’s latest smartphone is weaker than it was after previous iPhone launches, citing delivery times as a measure. While both new and existing Apple customers are looking to buy the iPhone 16 for faster connectivity, fewer cited Apple’s upcoming AI features as a motivating factor, according to the latest JPMorgan ( JPM ) survey.

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Certainly, Lee said that Apple is well positioned to lead the AI ​​smartphone market in the future. Lee said Apple “is the only integrated hardware-software player that can leverage proprietary data to provide low-cost, customized AI services.”

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

About 65 percent of Wall Street analysts who cover Apple recommend buying the stock, and they see the stock rising about 9 percent to nearly $245 over the next 12 months. Lee expects the stock to fall about 6% to $213.

Laura Bratton is a reporter for Yahoo Finance.

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