Apple slips as Jefferies downgrades on ‘too high’ iPhone expectations

Apple (NASDAQ:AAPL) shares slipped 1.3% in premarket trading on Monday as Jefferies downgraded the tech giant, citing iPhone expectations that are “too high.”

“We like Apple Intelligence [long-term], as AAPL is the only hardware-software integrated player that can leverage proprietary data to offer low-cost, personalized AI services,” analyst Edison Lee wrote in a note to clients. “But smartphone hardware needs rework before being capable of serious AI, with likely timeline of 2026/27. The high expectations for iPhone 16/17 are premature, in our view.”

Lee lowered his rating on Apple to Hold from Buy and has a $205 price target on the stock.

Delving a bit deeper, Lee said the expectations of 5% to 10% unit growth for the iPhone are “unlikely to be met,” citing a “lack of material new features and limited AI coverage.” As such, he believes the iPhone 16 cycle will only see 2.5% growth.

Despite that, Apple’s long-term AI capabilities are promising, due in part to its OpenAI partnership, as well as the fact that its OpenELM large language model is believed to consume only 1.56GB of RAM. Its other model, Ferret-UI, focuses on understanding people’s mobile screens.

“We believe AAPL is the leader in mobile AI tech, and its chip-OS-AI integrated ecosystem puts it far ahead of the fragmented Android competition,” Lee added.

Analysts are largely bullish on Apple (AAPL). It has a HOLD rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha’s quant system, which consistently beats the market, rates AAPL a HOLD.