Real AI smartphones are still a few years away, says Jefferies

• The iPhone 16 lacks new features and a new AI smartphone is years away, analysts wrote on Sunday.
• Apple shares fell 2.3% after Jefferies cut its rating from buy to hold.
• Despite these concerns, analysts continue to see long-term potential for the iPhone.

A group of analysts has finally said what even some of Apple’s fans have been thinking: the iPhone 16 was disappointing and it will be a while before a real AI smartphone is ready.

In a note on Sunday, analysts at Jefferies said the iPhone 16’s lack of new features and limited AI coverage meant that it may not sell as well as other analysts hope. They added that an AI-enabled smartphone is still two to three years away.

“Expecting an accelerated smartphone replacement cycle now due to AI is premature,” wrote analysts led by Edison Lee. The firm downgraded Apple from a buy recommendation to a hold recommendation.

Shares of the iPhone maker fell 2.3% on Monday following the notice.

iPhone sales are a closely watched metric because they account for about half of the company’s total revenue.

Much of the optimism surrounding Apple this year came from the June announcement of Apple Intelligence, the company’s take on artificial intelligence. Shares of the smartphone maker have risen more than 30% in the past six months, partly due to AI excitement.

But the fanfare surrounding the new technology died down in July when Bloomberg reported that the new iPhone 16 would not come with Apple Intelligence. Instead, users should wait for the AI ​​features, which include an AI-powered Siri and an image generator, to roll out through several software updates starting in October.

In Sunday’s note, Lee forecast “uneven volume growth” in the second half of 2024 for the iPhone 16 compared to the iPhone 15, and only 2.5% lifecycle volume growth for the iPhone 16.

To be sure, not all analysts believe that the delay in introducing Apple Intelligence will hurt the company. Some say it’s a small part of the overall product range.

“It’s like trying to weigh an elephant by a few hairs,” Gil Luria, Apple analyst for DA Davidson, told Business Insider last month. He said he gives little credence to third-party reports about iPhone 16 sales.

Even Jefferies’ Lee wrote that iPhone AI has potential, just not in the short term.

He wrote that Apple “is the only hardware-software integrated smartphone player” and that he is excited about its long-term AI capabilities.

He estimated the company will have 490 million AI-enabled iPhones by 2026 and 845 million by 2027. Apple sold 45.5 million phones in the three months ended June, according to research data Counterpoint.

In October, 32 of the 38 analysts covering Apple had a Buy rating on the company.