KeyBanc analyst Brandon Nispel downgraded Apple (NYSE: AAPL) shares from a “sector weight” to “underweight” and assigned a target price of $200 citing concerns over the sales outlook for iPhones.
Last month, Apple launched its iPhone16 which would soon feature “Apple Intelligence” features. However, analysts have been mixed on the sales outlook for the model.
KeyBanc downgrades Apple shares.
Nispel’s bearish thesis is based on KeyBanc’s consumer iPhone survey for September which showed that 59% of respondents are interested in upgrading to the iPhone 16. Also, among those users who are likely or extremely likely to upgrade to the new iPhone 16, only 61% are interested in the iPhone SE.
“We think this shows the iPhone SE is not incremental, and could possibly be cannibalistic to iPhone 16 sales,” said Nispel in his note. He added, “From our view, if iPhone SE is successful, iPhone Units could rise but [average sales prices] could fall, contrary to consensus.”
Nispel is also bearish on the upgrade rates in the US, Apple’s biggest market. “Consensus expects Apple ’25 revenue growth to accelerate higher and to grow across all product categories and geographies,” Nispel said in his note. He added, “While it is certainly possible Apple can achieve this feat, it is not probable, in our view.”
Itau BBA, the largest investment bank in Latin America is also bearish on Apple and Amazon heading into their earnings. “Overall, our conviction level for this quarter is low, especially after a phenomenal year for many tech investors and with positioning not in favor of the names we like,” said the firm in its note.
Apple Intelligence was unveiled in June.
For context, Apple revealed its “Apple Intelligence” at the Worldwide Developer Conference (WWDC) in June which helped trigger a rally in its share price. The company also reclaimed its $3 trillion market cap as investors gave a thumbs up to its artificial intelligence (AI) efforts.
It also announced a partnership with ChatGPT and the announcements helped dispel the fears that the Tim Cook-run company lagged tech peers in its AI efforts.
The company unveiled its iPhone 16 in September and the model went into sale later that month as has been the norm. Apple is set to report its fiscal Q4 2024 earnings next month which will provide more insights about how that model fared in the initial few weeks. However, analysts have a mixed opinion over that model which was once touted to trigger a massive replacement cycle of the kind we saw during the 5G upgrade.
Huawei is gaining market share in China’s smartphone market
Apple has been gradually losing market share in China as domestic smartphone companies, especially Huawei whose business suffered a near-death blow due to the US sanctions, have come up with attractive offerings.
In Q3, Apple was the second largest smartphone company in China with a market share of 15.6% which was slightly ahead of Huawei’s 15.3% share, according to data from International Data Corporation (IDC). However, while Apple’s market share dipped from 16.1% in the corresponding period last year and its shipments were almost flat during the quarter, Huawei’s shipments rose an impressive 42%.
“Huawei has staged an impressive comeback, recording four consecutive quarters of at least double-digit growth. The launch of the world’s first tri-foldable phone is expected to further drive the foldable market development,” said the IDC in its release.
Apple Intelligence Won’t Be Available in China Initially
Notably, Apple Intelligence features won’t be initially available in China as well as the E.U. as the company faces regulatory roadblocks in offering AI features in these regions.
Analysts believe rolling out AI features in China won’t be easy for Apple. Bryan Ma, vice president of devices research at IDC, told CNBC via email. “China is in another world when it comes to AI given the regulatory environment there, so China is a big asterisk on Apple’s big announcements last week.”
CCS Insight Chief Analyst Ben Wood believes “Localising the Apple Intelligence experience will be a major challenge for Apple. He added, “As with all technology deployments, there are nuances to the way the service is delivered to respect the specific customs, regulations, and use cases in a particular country.”
AAPL faces headwinds in China
Notably, AAPL has partnered with ChatGPT which is not available in China. The Wall Street Journal reported that Apple is in talks with Chinese tech companies like Amazon, Baidu, and Baichuan AI for partnership in the Chinese market.
China has been even more protective of the data of its citizens. It has banned government employees from using Apple’s iPhone and the Cupertino-based company removed Meta Platforms’ apps from the Chinese App Store earlier this month on orders from the government. Meta’s apps like WhatsApp and Threads were anyways mostly inaccessible to Chinese users but Apple removing them from the App Store makes it even tougher to access these apps in the country.
Not all analysts are bearish on AAPL.
Meanwhile, not all brokerages share KeyBanc’s pessimism towards Apple. Yesterday, Rosenblatt reiterated Apple shares as a buy. In its note, the firm said, “The obvious read is that there is not a super cycle yet. But that’s OK, since we aren’t modeling one in the Sept. quarter. Instead, we assume muted 3% iPhone revenue growth in the Sept. quarter, 4% in 3 of the four quarters of F2025.”
Bernstein also echoed similar views and reiterated its “overweight” rating on Apple. In its note, it said, “We believe that a more muted iPhone 16 cycle (and potentially stronger iPhone 17 cycle) is increasingly embedded in expectations and that the combination of elongated replacement cycles and AI functionality should drive strong upgrades over the next two years.”
Meanwhile, while AAPL shares were trading lower in US premarkets today, they are in the green in early price action amid the broad-based recovery in US markets.
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Mohit Oberoi
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