3 min read
In This Article:
Apple (AAPL) stock was downgraded to Hold from Buy by Needham analysts who said the stock is overvalued amid growing AI competition.
Analyst Laura Martin explained in a note to clients Wednesday that Apple is currently trading at a more expensive multiple than it has historically, just as the rise of generative AI threatens to disrupt the iPhone maker's businesses.
Apple is currently the worst-performing stock of its "Magnificent Seven" Big Tech peers, down roughly 18% for the year. The company has faced lagging sales in China and a sluggish smartphone market. The stock was hit with two downgrades in January from Jefferies and Loop Capital.
Shares, which stood just above $200 on Wednesday, are priced at roughly 26 times the company's projected 2026 earnings, a multiple 50% above its 10-year average and 25% above the current average forward-year 2026 price-to-earnings ratio for the S&P 500 (^GSPC), Martin noted.
"We believe that, for this stock to work, it must have the catalyst of an iPhone replacement cycle, which we do not foresee in the next 12 months," Martin wrote. "Until then, we believe that $170-$180/share is a better entry level." She also said Apple could accelerate growth by deciding to "aggressively pursue an advertising revenue stream."
Needham's downgrade comes as the smartphone market at large is experiencing a slump: Counterpoint Research on Wednesday lowered its 2025 annual growth forecast for global smartphone shipments to 1.9% from 4.2%, citing uncertainties related to US tariffs.
Meanwhile, Apple is facing growing competition in AI. Martin wrote that "every Big Tech company is building platforms designed to displace AAPL's integrated hardware and software products in a GenAI [generative artificial intelligence] world."
That includes Meta's AI smartglasses, as well as OpenAI and Jony Ive's development of a new mystery AI hardware device that could offer an AI alternative to smartphones, the analyst said.
Apple also doesn't reap the benefits of AI Cloud revenue like its competitors.
"While peers like Microsoft (MSFT), Google (GOOG), and Meta (META) are launching foundational models and GenAI-native platforms, AAPL still lacks a competitive LLM [large language model] or a developer ecosystem around GenAI capabilities," Martin wrote.
In April, Apple stock's 200-day moving average rose above its 50-day moving average, a phenomenon called a "death cross."
"This pattern is typically viewed as a bearish signal, indicating continued downward momentum," Martin wrote.
