by The brightest light on Wall Street is dimmer at the beginning of 2024.
Apple (AAPL), the most valuable company on the market, suffered a brutal run in the first days of the new year. The iPhone maker, which commands about 7% of the weight of the S&P 500 index (^GSPC), steering the fate of investors’ portfolios, pulled two stock downgrades this week, dragging shares down more than 5% and raising concerns about claim the iPhone is weakened. .
Barclays struck the first blow. Analysts then cut Apple’s rating to Underweight and dropped their price target to $160, reflecting a roughly 17% drop in stock price for the tech giant since last year.
“We rate Apple Under Weight as questions remain about declining iPhone upgrade demand with rising competition in the premium smartphone segment,” the analysts wrote.
The follow-up punch landed on Thursday, when Piper Sandler analysts downgraded their rating on Apple stock to Neutral from Overweight and sliced their price target by $15 to $205. Apple shares were trading hands at around $182 on Thursday afternoon.
“We are concerned about handset inventories going into 1H24 and we also feel that growth rates have peaked for unit sales,” lead analyst Harsh Kumar said in a note to clients. “A deteriorating macro environment in China could also weigh on the handset business.”
The percentage of analysts with a bullish rating on the stock is at a three-year low, according to Bloomberg data.
Apple’s iPhone revenue fell by about $5 billion in 2023 from the previous year. The flagship iPhone represents about half of the company’s total revenue. Sales of Macs, iPads and wearables also fell, as rising inflation and interest rates weighed on consumers.
But bullish analysts point to Apple’s growth services business, which has increased from $78 billion in 2022 to $85 billion in 2023. In the most recent quarter revenue from services increased by almost 20% compared to the same period the previous year. Apple’s huge user base and the strength of its services are key to more positive readings of the company’s future. Wedbush analysts led by Dan Ives assert the business value of Apple services as high as $1.6 trillion and predict that Cupertino will be the first $4 trillion company by the end of 2024.
Skeptical observers, however, see heightened risks even in Apple’s most promising segment. Barclays noted that services may attract further regulatory scrutiny. Investigations into the app store could be tougher, especially as other tech giants prepare for a wave of significant antitrust rulings this year. Another big factor for tech stocks is how Big Tech fares in the US presidential election and how aggressively the next administration will pursue competition enforcement.
Apple’s lucrative deal to use Google as the default search engine in its Safari browser, which is expected to bring in billions of dollars for its services business, could also be under threat. Closing arguments for the Justice Department’s antitrust case against the search giant are scheduled for spring.
Apple’s lowered expectations among some analysts coincide with stock performance lagging behind other members of the Magnificent Seven.
All the names in the elite, tech-centric group beat the benchmark S&P 500 index handily. But Apple claimed the lowest position, rising about 50% in 2023. That’s nothing to sneeze at, but it’s significant compared to the massive gains of Nvidia (NVDA) and Meta (META), up 239% and 194%, respectively, or even. Microsoft (MSFT) rose more modestly by 57%. A 54% rise in the Nasdaq 100’s (^NDX) also managed to topple Apple.
Where much of the tech world and even players outside of it have bought into the AI hype – releasing products, announcing new ventures or simply repeating the words “AI” – CEO has taken a more subtle approach Apple, Tim Cook. That may also have been a factor in the market’s cooling reception.
In recent earnings calls, Cook explained that AI is already integrated into Apple’s consumer experience. It’s just that the company doesn’t explicitly call out the technologies, as if it were a marketing gimmick, but instead relies on weaving AI into its products and focusing on the customer’s benefit. In another rhetorical move that appeared to be gently critical of other tech leaders, Cook said the company tends to reveal new technologies when they’re ready for users. And not before.
If a consumer technology company is defined by how its products feel to users – in terms of vibes rather than the intricacies of its software, it’s Apple. So showing what’s next in the AI development cycle doesn’t have the benefits.
But a more pessimistic interpretation is that Apple is getting left behind by competitors such as Microsoft and Meta with their big language models, envisioning generational AI as the next big frontier for technology. And most of us already have phones.
Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on Twitter @hshaban.
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