Jefferies Lowers Apple Rating: Market Expectations For iPhone 16 Sales Are Too Optimistic

Apple's stock closed down 2.25% on Monday, after analysts at Jefferies, a well-known investment bank, said that investors' expectations for the company's latest iPhone, which is the company's first smartphone equipped with artificial intelligence (AI) tools, were overly optimistic.

In his latest report, Jefferies analyst Edison Lee wrote: "The high expectations for iPhone 16/17 are premature, as a lack of material new features and limited AI coverage mean high market expectations (5%-10% unit growth) are unlikely to be met."

Lee downgraded Apple's rating from "Buy" to "Hold" and set a target price of $205.

Apple's stock has rebounded about 34% from its low point in April, with most of the increase reflecting optimism that AI features will drive consumers to upgrade their phones and re-accelerate profit growth. However, early signs indicate mixed market demand.

Lee said he recognizes the long-term potential of AI and believes that Apple is "the only hardware-software integrated player that can leverage proprietary data to offer low-cost, personalized AI services."However, he said the current valuation is "high," and AI will not be a driving factor in the short term.

"Smartphone hardware needs rework before being capable of serious AI, which may not happen until 2026 or 2027," he added.

Overall, while Wall Street analysts are optimistic about Apple, they do not believe that the iPhone 16 can immediately save the stock price or significantly increase demand. Only 65% of analysts recommend buying the stock, compared to a percentage close to or exceeding 90% for Microsoft, Nvidia, and Amazon.

Jefferies is not the only one who is not optimistic about the iPhone 16. Barclays also sounded the alarm in a report earlier this month. Barclays analysts, led by Tim Long and George Wang, revealed that they had conducted a survey of the iPhone supply chain and found that due to lower-than-expected demand, Apple may have cut the production of the iPhone 16 for the fourth quarter, with key component suppliers being significantly reduced.

The report stated that the supply chain survey found that a top supplier from Taiwan may have been significantly reduced by Apple, "We believe that Apple may have just cut the production of about 3 million units of key semiconductor components for the iPhone (for the quarter ending in December)."

Barclays analysts explained in the report that if the survey is correct and Apple's related order cuts can be confirmed, this would be the earliest order cut in the latest mobile phone sales cycle, as Apple usually adjusts orders for the first time at the beginning or middle of October.

In addition, the report also mentioned an indicator used to measure demand—the delivery time for new iPhone models is shortening, and they believe it shows weak consumer demand.