Jefferies Downgrades Apple: iPhone Hype Faces Reality Check

Jefferies recently downgraded Apple's stock rating from "buy" to "hold," citing overly optimistic expectations for the latest iPhone models. The stock saw a decline of roughly 1% in pre-market trading following the news.

Analyst Edison Lee highlighted that the market's high expectations for the iPhone 16 and 17 are premature. He noted that substantial redesigns in smartphone hardware are necessary to truly integrate AI capabilities, a development he predicts might not occur until 2026 or 2027.

Lee stated that the anticipated 5% to 10% growth in iPhone sales might be unrealistic due to the lack of significant new features and limited AI integration. He projected a more modest growth of 2.5% for the iPhone 16 cycle.

Despite these concerns, Lee remains optimistic about Apple's long-term potential in AI. He praised Apple's ability to leverage proprietary data to offer cost-effective and personalized AI services through its integrated software and hardware ecosystem. This positions Apple ahead of its fragmented Android competitors.

Lee emphasized the uniqueness of Apple's AI strategy, underscoring its partnership with OpenAI and the efficiency of its OpenELM language model, which uses minimal resources. Additionally, another model, Ferret UI, focuses on optimized user interactions with device screens.

In summary, while Apple's current valuation factors in AI advancements, Lee cautioned that AI might not be a short-term catalyst for growth, citing the need for further hardware evolution to fully realize AI ambitions.