Apple (AAPL) was snubbed by investment firm Jefferies (JEF) on Sunday night. Jefferies analyst Edison Lee downgraded Apple stock from Buy to Hold, citing concerns about inflated expectations for its new AI-enabled iPhones.
Lee said smartphone hardware is not yet advanced enough to accommodate the kind of high-tech artificial intelligence that iPhone analysts and consumers expect.
“Near-term expectations for the iPhone 16 and even the 17 are too high,” Lee wrote in a note to investors late Sunday.
Big tech companies have been quick to innovate generative artificial intelligence technologies and secure their position in a market dominated by AI. Until this summer, Wall Street was worried that Apple would catch up to rivals like Google (GOOG) and Microsoft (MSFT), which have rushed to launch new chatbots and AI chips, while Apple CEO Tim Cook remained elusive about the iPhone maker’s AI plans. . Now that Apple has put its AI vision into action with the upcoming launch of Apple Intelligence, its next hurdle (like its competitors) is to prove it can monetize those AI plans.
Apple shares fell 0.9% on Monday morning.
“Unlike AI servers, smartphones lack high-speed memory and advanced packaging technology that enables fast data transfer between AP and memory, which limits their AI capabilities,” Lee said, and He added: “Expecting an accelerated smartphone replacement cycle now due to AI is premature, in our opinion.”
Lee said it will take manufacturers like Apple two or three more years to create smartphone hardware that is capable of running AI software smoothly.
Apple unveiled its suite of artificial intelligence tools, called Apple Intelligence, at its Worldwide Developers Conference in June. Apple’s long-awaited AI debut, plus the revelation of a partnership with OpenAI, drove shares to record highs. It more than alleviated investor concerns about the barrage of bad news from Apple earlier in the year, from iPhone sales difficulties and layoffs to clashes with antitrust regulators at home and abroad. Wamsi Mohan, an analyst at Bank of America (BAC), predicted a future in which Apple’s “intelliphones” equipped with artificial intelligence will dominate the market.
But Apple’s initial launch of its iPhone 16, equipped with hardware to run its Apple Intelligence features that will begin rolling out this month, has so far disappointed Wall Street. Analysts say demand for Apple’s latest smartphone is weaker than after previous iPhone launches, citing shipping times as one metric. While new and existing Apple customers are looking to purchase the iPhone 16 for its faster connectivity, fewer cited Apple’s upcoming artificial intelligence features as a motivating factor, according to the most recent consumer survey from JPMorgan (JPM).
Without a doubt, Lee said Apple is well positioned to lead the AI smartphone market in the future. Lee said Apple “is the only integrated hardware and software player that can leverage proprietary data to deliver low-cost, personalized AI services.”
“We believe AAPL is the leader in mobile AI technology, and its integrated ecosystem of chip, operating system and AI puts it well ahead of the fragmented Android competition.”
About 65% of Wall Street analysts covering Apple recommend buying the stock and predict the stock will rise about 9% to nearly $245 over the next 12 months. Lee expects shares to fall about 6% to $213.
Laura Bratton is a Yahoo Finance reporter.
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