The brightest light on Wall Street is dimmer at the start of 2024.
Apple (AAPL), the most valuable company in the market, went through a painful process in the first days of the new year. The iPhone maker, which accounts for nearly 7% of the weight in the S&P 500 (^GSPC) index and drives the fortunes of investors’ portfolios, has suffered two stock downgrades this week, sending shares down more than 5% and raising concerns about weakening demand for iPhones.
Barclays struck the first blow. Analysts here downgraded Apple to underweight and lowered their price target to $160; This represented a stock price decline of approximately 17% for the tech giant compared to last year.
“We rate Apple Underweight as questions remain regarding worsening demand for iPhone upgrades coupled with increased competition in the premium smartphone segment,” the analysts wrote.
The development came Thursday as analysts at Piper Sandler downgraded their rating on Apple’s shares from overweight to neutral and lowered their price target from $15 to $205. Apple shares were trading at $182 on Thursday afternoon.
“We are concerned about the entry of mobile phone stocks in the first half of FY24 and also think that growth rates in unit sales have peaked,” chief analyst Harsh Kumar said in a note to clients. “The worsening macro environment in China could also weigh on the mobile phone business.”
According to Bloomberg data, the rate of analysts with bullish expectations on the stock is at its lowest level in the last three years.
Apple’s iPhone revenue decreased by approximately $5 billion in 2023 compared to the previous year. The flagship iPhone accounts for nearly half of the company’s total revenue. Sales of Macs, iPads and wearable devices also fell as rising inflation and interest rates weighed on consumers.
But bullish analysts focus on Apple’s growing services business, which will grow from $78 billion in 2022 to $85 billion in 2023. In the last quarter, revenue from services increased by almost 20% compared to the same period in the previous year. Apple’s massive user base and the strength of its services are a key component of more optimistic readings of the company’s future. Wedbush analysts led by Dan Ives put the value of Apple’s services business at up to $1.6 trillion and predict Cupertino will be the first $4 trillion company by the end of 2024.
But skeptical observers see increasing risks even in Apple’s most promising segment. Barclays said the services could face greater regulatory scrutiny. Investigations into the app store may intensify, especially as other tech giants prepare for a significant wave of antitrust decisions this year. How Big Tech fares in the US presidential election and how aggressively the next administration will be in enforcing competition is another important factor for tech stocks.
Apple’s lucrative deal to use Google as the default search engine in its Safari browser, which is estimated to generate billions of dollars for its services business, may also be under threat. Closing arguments in the Justice Department’s antitrust lawsuit against the search giant are scheduled for this spring.
Some analysts say Apple’s weakening prospects coincide with its stock’s performance falling behind other members of the Magnificent Seven.
All the names in the elite, tech-centric group easily outperformed the S&P 500 index. But Apple took the bottom spot, up roughly 50% in 2023. That’s nothing to sneeze at, but it’s notable when compared to Nvidia’s (NVDA) and Meta’s (META) staggering gains of 239% and 194%, respectively. Microsoft’s (MSFT) more modest 57% gain. The 54% increase of Nasdaq 100 (^NDX) also managed to surpass Apple.
While much of the tech world, and even players outside it, are scrambling to get in on the AI excitement (by releasing products, announcing new initiatives, or simply reading the words “AI”), Apple CEO Tim Cook has taken a more nuanced approach. This may have been effective in cooling the market.
Cook explained in recent earnings calls that AI is already integrated into the Apple consumer experience. It’s just that the company doesn’t explicitly tout the technologies as if it’s a marketing gimmick, instead relying on embedding AI in its products and focusing on customer benefit. In another rhetorical move that gently criticized other tech leaders, Cook said the company tends to announce new technologies when they’re ready for users. And not before.
If there’s one consumer technology company defined by how its products make users feel, rather than the complexity of its software, it’s Apple. So there are benefits to not showing what will happen in the AI development cycle.
But a more pessimistic interpretation is that while rivals like Microsoft and Meta are moving toward broad language models that frame generative AI as technology’s next big frontier, Apple is falling behind. And most of us already have phones.
Hamza Şaban is a reporter following markets and economy at Yahoo Finance. Follow Hamza on Twitter @hshaban.
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