Apple Inc. (NASDAQ: AAPL) received a downgrade on January 7, as MoffettNathanson lowered its rating to ‘sell’ from ‘neutral,’ citing a ‘decidedly unattractive’ outlook for the tech giant.
The firm also slashed its price target from $202 to $188, representing a potential 22% downside from Apple’s current trading level of $242.21.
The downgrade comes as Apple grapples with a series of challenges, including regulatory risks, weakening iPhone sales in China, and a lukewarm reception to its latest product offerings despite its dominance in the tech sector.
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As of the market close on January 7, Apple shares were priced at $242.21, marking a 4.12% decline over the past five days. Despite this recent dip, the stock has surged more than 30% over the past year, pushing its current market capitalization to $3.66 trillion.
Concerns over valuation and growth
MoffettNathanson analyst Craig Moffett raised concerns about Apple’s valuation, pointing out that the company trades at one of the highest multiples among the ‘Magnificent Seven’ tech giants, despite having the slowest growth rate in the group.
The firm also highlighted the lack of significant catalysts, such as a major upgrade cycle for iPhone 16 or breakthroughs in Apple Intelligence, to justify the elevated valuation levels.
“Our valuation framework predominantly relies on a multi-year discounted cash flow (DCF) analysis, incorporating an 8.0% weighted average cost of capital (WACC) and 4.0% terminal growth assumption (down 50bps from our prior model), which implies a 19.5x EV/EBITDA terminal multiple.” –
– Craig Moffett noted.
Moffett also highlighted the underwhelming consumer response to Apple’s latest AI-driven features introduced with iOS 18.1.
Tools such as transcription and email drafting failed to generate the anticipated excitement, adding to the concern about the company’s ability to drive the necessary upgrade cycle for sustained growth.
Key challenges clouding Apple’s outlook
In addition to valuation concerns, Moffett pointed to a ‘steady drumbeat of bad news’ surrounding Apple in recent months.
A critical blow came from a federal judge’s ruling that Alphabet’s (NASDAQ: GOOGL) $25 billion annual payments to Apple for Google’s default search position on iPhones were illegal. This ruling raises the likelihood of intensified regulatory scrutiny for Apple.
Furthermore, the Chinese market, a major revenue source and a key manufacturing hub for Apple, has shown signs of declining iPhone demand, further dampening the company’s growth outlook.
Moffett also noted the disappointing performance of the Vision Pro headset, Apple’s much-anticipated entry into augmented reality, which has failed to meet expectations.
“The news includes a federal Judge having declared the payments Google (GOOGL) makes to Apple each year for default search position to be illegal; Apple’s position in China having “steadily weakened”; and the Vision Pro having “disappointed even the low expectations that had been set for it.” – the analyst noted.
Contrasting views on Wall Street regarding AAPL stock
While MoffettNathanson’s downgrade reflects growing concerns over Apple’s valuation and growth prospects, not all analysts share the same outlook for the tech giant.
Wedbush Securities analyst Dan Ives described this period as a “golden era of growth” for Apple, projecting that advancements in artificial intelligence will spark a multi-year iPhone upgrade cycle, with sales expected to surpass 240 million units in Fiscal Year 2025.
Similarly, Bernstein analyst Toni Sacconaghi recently raised his price target for Apple from $240 to $260, citing the company’s strong fundamentals, disciplined capital returns, and ability to deliver double-digit earnings growth.
However, even among optimistic outlooks, caution lingers. Sacconaghi noted the stock’s historically high valuation levels and its seasonal trading patterns, expressing concerns about the lackluster reception of the iPhone 16, which could temper investor enthusiasm in the near term.
These diverging views highlight a growing debate over whether Apple can justify its elevated valuation amid regulatory risks and tepid product performance.
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