Jeffries Upgrades Apple Rating on 15% iPhone Sales Surge, Cautions on H2 Demand

Jeffries Investment Bank recently upgraded its rating for Apple Inc. (AAPL.US) from "underperform" to "hold." This change is primarily based on the anticipated surge in global iPhone sales for the third fiscal quarter of 2025 (April to June), which does not correspond to the third calendar quarter. However, the firm also warns of potential demand weakness in the smartphone market in the second half of the year, particularly regarding the growth of Apple's service business revenue.

According to Counterpoint Research, global iPhone shipments for April and May of this year increased by 15% year-over-year, marking the strongest quarterly growth since 2021. Analyst Edison Lee and his team at Jeffries noted that this performance was built on a 12.5% increase in sales from the previous quarter, driven by a resurgence in demand from China and effective promotional strategies.

During the recently concluded "618" e-commerce promotion period, iPhone sales in China surged by approximately 19% year-over-year, thanks to targeted discounts and government consumption subsidies. This boost contributed to a 10% year-over-year increase in sales for the first 45 days of the June quarter. Analysts believe these figures indicate that Apple is actively consolidating its position in the high-end smartphone market in China, with price-sensitive consumers showing a strong willingness to upgrade under favorable conditions.

Based on these market performances, Jeffries has significantly raised its forecast for iPhone shipments in the third quarter to 49.4 million units, with a year-over-year growth rate revised from the previous 1% to 9%. However, the firm maintains a cautious outlook for the second half of the year, predicting that shipments for the September quarter (July to September) will decline by 11% sequentially to 46.3 million units, resulting in a 6% year-over-year decrease.

Supply chain research indicates that the production target for the iPhone 17 series in the second half of 2025 is roughly in line with the same period last year. However, analysts caution that if the new products lack revolutionary functional breakthroughs and artificial intelligence applications do not deliver a disruptive user experience upgrade, sales of the new models could face pressure.

Market expectations are that Apple will release its third-quarter financial report around July 31. Current estimates on Wall Street project revenue of $88.67 billion and earnings per share of approximately $1.42. Despite a 1% increase in Apple's stock price in early trading on Wednesday following the rating upgrade, the stock has declined by 17% year-to-date, reflecting investor concerns about the sustainability of growth for the tech giant. As of the time of writing, Apple's stock price was hovering around $211.50. Jeffries' rating adjustment reflects the market's mixed sentiment towards the consumer electronics industry: short-term promotional effects are evident, but long-term innovation momentum and demand recovery remain to be observed.