Technology titan Apple (NASDAQ: AAPL) has received a rare Wall Street downgrade, with an analyst fronting a pessimistic outlook regarding the company’s valuation and skepticism surrounding artificial intelligence (AI)-driven smartphone features.
The downgrade complicates matters for AAPL, which has had a grim start to 2025. At the close of the last trading session, the stock was valued at $229.98, up almost 1% for the day.
The equity is down almost 9% year-to-date. Ahead of the market opening on January 21, the AAPL share price showed further weakness, down over 1% to $227.99.
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Analyst’s Apple downgrade
In an investor note on January 21, Jefferies analyst Edison Lee downgraded Apple to ‘Underperform’ from ‘Hold’, slashing the price forecast to $200.75 from $211.84. The latest price cut reflects a possible 12% drop from the stock’s current valuation.
Lee cited Apple’s expensive valuation of 32x FY25 estimated earnings and a 15% premium to the firm’s long-term discounted cash flow (DCF) estimates. Additionally, near- and mid-term revenue forecasts appear overly optimistic, even after recent downward revisions.
Another key factor driving the downgrade is muted consumer enthusiasm for smartphone AI features, including Apple Intelligence. According to the analyst, potential delays in Apple’s advanced packaging roadmap for the iPhone could further exacerbate the lackluster outlook for AI adoption in its devices.
“Our view that consumer feedback on AI functions in smartphones, including Apple Intelligence, will remain muted,” Lee said.
Lee also highlighted several catalysts for potential underperformance, including Apple’s upcoming Q1 FY25 results, revenue guidance for Q2, and the sales trajectory of the iPhone 17.
iPhone’s weak reception
In recent months, much of Wall Street’s outlook on Apple’s stock has revolved around the company’s iPhone sales. Recent data paints a troubling picture, complicating matters for the firm’s flagship smartphone brand.
For instance, iPhone sales in China—a key market—plummeted 18.2% year-over-year during the December quarter, according to Counterpoint Research, dropping Apple to third place in the market.
Amid this decline, Apple faces growing competition from local brands, with Huawei reclaiming the top spot thanks to a 15.5% surge in sales driven by its Mate 70 series and mid-range Nova 13 lineup.
Notably, Apple’s struggles in the Chinese market stem partly from the limited traction of its AI-enabled iPhones, hindered by the unavailability of key features in the region as the company works to establish a local AI infrastructure. Globally, iPhone sales fell 5% during the same period.
To make matters worse, Apple supply chain analyst Ming-Chi Kuo forecasts a possible 6% YoY drop in iPhone shipments for H1 2025, with most of the decline likely occurring in Q2.
The Jefferies downgrade mirrors another similar rating issued by Moffett Nathanson. The firm’s analyst, Craig Moffett, lowered his AAPL stock rating to ‘Sell’ from ‘Neutral’, citing a “decidedly unattractive” outlook for the company. Moffett pointed to Apple’s valuation and the lukewarm reception of its latest devices.
Interestingly, despite these iPhone struggles, Finbold reported that Evercore ISI maintained a ‘Tactical Outperform’ rating on AAPL shares, with a $250 price target.
Apple’s bullish outlook
Not all Wall Street is bearish on Apple as one of the stock’s main targets remains clinching the $300 spot in 2025.
Specifically, Wedbush’s Dan Ives has noted that this is a “golden era of growth” for Apple, predicting that AI advancements will drive a multi-year iPhone upgrade cycle, with sales topping 240 million units in FY 2025.
Bernstein’s Toni Sacconaghi raised Apple’s price target from $240 to $260, citing strong fundamentals, disciplined capital returns, and double-digit earnings growth.
However, Sacconaghi cautioned that Apple’s high valuation and seasonal trading patterns, along with the slowed reception of the iPhone 16, could dampen near-term investor enthusiasm.
Featured image via Shutterstock
