Apple Receives Rare "Downgrade" Warning Amid Flat iPhone Sales and High Valuation, Stock Dips

Apple is facing a rare downgrade warning due to stagnant iPhone sales and a rich valuation, thanks to KeyBanc. Recent consumer survey data indicates a lack of growth for the tech giant.

Analyst Brandon Nispel downgraded Apple from sector weight to underweight, setting a price target of $200, which reflects a potential downside of over 13% from Thursday's close. Following this announcement, shares fell another 1% in premarket trading.

Nispel cites concerning data regarding U.S. iPhone upgrades as the basis for the downgrade. Recent updates from major U.S. wireless carriers—including Verizon, AT&T, and T-Mobile—showed a 9% year-on-year decline in upgrade rates, which could negatively impact Apple sales in the world's largest economy.

Additionally, IDC reported that Apple's sales in China declined by 0.3% in the three months ending in October compared to the same period last year, while Huawei experienced a remarkable 42% surge in sales.

KeyBanc projects that iPhone sales could decrease by mid-single digits in the fourth quarter and low-single digits in the first half of 2025. Nispel believes that a turnaround across the company's product categories is "unrealistic" moving forward. He stated, "Consensus expects Apple's revenue growth in 2025 to accelerate across all product categories and geographies. While it is certainly possible for Apple to achieve this feat, it is not probable, in our view."

The firm noted that Apple has only managed to grow revenues across all product categories twice in the past two decades, achieving growth in all five global regions in just three of the last twenty years.

Preliminary data for the iPhone 16 also appears bleak. Industry supply chain analyst Ming-Chi Kuo reported that Apple has cut orders for the iPhone 16 by about 10 million units for the fourth quarter of this year and the first half of 2025. Kuo noted that Apple's intelligence launch is unlikely to boost sales in the short term.

Furthermore, Nispel expressed concerns that the iPhone SE is "not purely additive" to overall iPhone sales. Data from KeyBanc's consumer iPhone survey conducted in September revealed that 59% of respondents are interested in upgrading to the iPhone 16. Among those likely or extremely likely to upgrade, 61% expressed interest in the iPhone SE.

"We believe this indicates that the iPhone SE is not incremental and could potentially cannibalize iPhone 16 sales," the analyst wrote in a Thursday note. "From our perspective, if the iPhone SE is successful, iPhone units could rise, but average selling prices could fall, contrary to consensus expectations." Nispel also anticipates that upgrade rates in the U.S. are unlikely to increase heading into next year.

Lastly, Nispel highlighted Apple's expensive valuation, noting that the company's forward price-to-earnings ratio stands at approximately 34.4, according to FactSet.