Apple shares took two downgrades due to weak iPhone sales and artificial intelligence expectations

Jefferies analyst Edison Lee downgraded the investment bank’s rating on Apple (Apple) underperformed and cut its price target for Apple stock by 13% to $200.75 on Monday. Loop Capital also downgraded Apple stock from buy to hold, with a revised price target of $230, down from $275.

In a note to investors, Lee said he expects Apple to report lower-than-expected results for the December quarter and a miss on expectations for the second quarter due to weak iPhone sales and lack of interest in artificial intelligence among consumers.

Apple shares fell as much as 3.7% midday Tuesday. The stock is up 16% in the past 12 months. Big technology companies compete with meta (dead) and the alphabet (Google, Google) increased by 36% and 30%, respectively, over the past year, while Microsoft (MSFT) by only 3.5%. The broader S&P 500 rose 20% in the same period.

According to Lee, iPhone sales in China are down 15% to 20% year-on-year. Apple faces a number of headwinds in the region, including the continued rise of local offerings from Huawei and Xiaomi and cautious consumer spending amid a slower economic backdrop.

Apple isn’t just dealing with problems in China. The iPhone’s overall market share fell nearly 1% year over year in the fourth quarter to 23%, according to estimates by Canalys and IDC. This is despite the fact that smartphone shipments rose by 3%, Canalys reports.

Jefferies expects iPhone revenue to decline 0.4% year over year in the first quarter, while Apple’s total sales will grow 2.8%, lower than the company’s previous estimate of 4.6%.

Part of Apple’s problem, Lee asserts, is that the company’s big push toward artificial intelligence isn’t as successful as investors had hoped. Apple Intelligence, Apple’s artificial intelligence platform for iPhone, iPad and Mac, was expected to kick off a sales supercycle. But if the IDC and Canalys estimates prove correct, it will throw cold water on the rise in AI sales.

Apple began rolling out Apple Intelligence in batches in October. It’s a risky move for Apple, which generally launches its latest and greatest products and services simultaneously with big, flashy launch events. This makes it difficult for customers to know when the platform will have all the capabilities that Apple initially promised when Apple Intelligence debuted it in June 2024.

AI smartphones, and their AI counterparts PCs, have struggled to gain traction despite a massive sales push from tech giants ranging from Apple and Google to Microsoft and Intel.

Apple’s iPhone is its most important product, and China is one of its most important sales regions. In 2024The iPhone represents $201.1 billion of Apple’s total revenue of $391 billion. The company’s second largest business segment, its services division, generated $96.1 billion.

The story continues

However, China has proven to be a constant source of headache for Apple over the past two years. Sales in the region fell 8% in 2024, falling to $66.9 billion, and 2% in 2023. At the time, Apple blamed the weakness of the renminbi against the dollar and falling iPhone and iPad sales.

According to Mark Gurman of BloombergApple will launch a new iPhone SE in the coming months, which could help boost overall sales in the mid-range smartphone market. The company is also set to introduce new entry-level iPads and new MacBook Airs, which could improve sales in these segments.

Apple will report first-quarter earnings after the bell on January 30.

Email Danielle Hawley at [email protected]. Follow him on Twitter at @Daniel Holly.

Click here for the latest technology news that will impact the stock market

Read the latest financial and business news from Yahoo Finance