Apple Shares Slip as Analyst Cites AI iPhone Hype and Cautions on Growth

Apple Inc.'s shares fell over 1% on Monday after a Jefferies analyst suggested that investors may harbor overly optimistic expectations for the company's newest iPhone, which incorporates artificial intelligence tools for the first time.

Jefferies analyst Edison Lee expressed skepticism about the high expectations surrounding the iPhone 16/17, highlighting that the anticipated 5%-10% sales growth might not be realistic due to a lack of significant new features and limited AI integration. Following these observations, Lee downgraded Apple's rating from “buy” to “hold.”

Apple's stock has experienced a substantial rebound of approximately 36% since its low in April, driven largely by market enthusiasm for the potential of AI functionalities to encourage consumers to upgrade their devices, potentially boosting revenue growth. However, early indicators of demand are mixed.

Despite acknowledging AI's long-term potential, Lee pointed out that Apple's current valuation is high and AI will not serve as a major growth driver in the near term. He indicated that the smartphone hardware needs a redesign to truly harness AI capabilities, with a feasible timeline set around 2026/2027.

Compared to other tech giants, Wall Street holds a more cautious stance on Apple, with only 65% of analysts recommending a buy rating, while companies like Microsoft, Nvidia, and Amazon enjoy recommendations close to or exceeding 90%.

Lee reiterated his long-term confidence in Apple's ability to leverage proprietary data to deliver low-cost, personalized AI services as a unique software-hardware integrated company. He predicts a modest iPhone 16 growth rate of only 2.5%, due to limited substantial innovations and AI reach.

Nonetheless, Apple's potential in AI remains promising, partly due to its collaboration with OpenAI and developments in its large language model, OpenELM, and the Ferret UI for enhanced user screen interaction. Lee concluded that Apple's integration of chips, operating systems, and AI keeps it well ahead of fragmented Android competition in mobile AI technology.