TLDR:
- Apple stock downgraded by Jefferies from Buy to Hold
- Analyst cites inflated expectations for AI-enabled iPhones
- Smartphone hardware not yet advanced enough for high-tech AI
- Serious AI smartphones likely 2-3 years away
- Apple well-positioned to lead AI smartphone market in future
Apple, the tech giant known for its innovative products, is facing a reality check as investment firm Jefferies downgrades its stock from Buy to Hold.
The downgrade comes amid concerns that expectations for Apple’s new AI-enabled iPhones may be too high, given current limitations in smartphone hardware.
Jefferies analyst Edison Lee points out that smartphone technology is not yet advanced enough to accommodate the kind of high-tech artificial intelligence that analysts and consumers are hoping for.
Lee suggests that it will take two to three more years for manufacturers like Apple to create smartphone hardware capable of running artificial intelligence software smoothly.
The downgrade has had an immediate impact on Apple’s stock, which fell 2.3% following the news. This setback comes after a period of optimism surrounding Apple’s AI plans.
The company unveiled its suite of artificial intelligence tools, called Apple Intelligence, at its Worldwide Developer Conference in June. This announcement, along with a partnership with OpenAI, had previously boosted the stock to record highs.
However, the initial launch of the iPhone 16, equipped with hardware to run Apple Intelligence features, has not met Wall Street’s expectations. Analysts report that demand for Apple’s latest smartphone is weaker than it was after past iPhone launches, using shipping times as a metric.
A consumer survey by JPMorgan revealed that while both new and existing Apple customers are interested in buying the iPhone 16 for its faster connectivity, fewer cited Apple’s upcoming AI features as a motivating factor.
Despite these short-term challenges, Lee believes that Apple is well-positioned to lead the AI smartphone market in the future.
He notes that Apple “is the only hardware-software integrated player that can leverage proprietary data to offer low-cost, personalized AI services.” This integrated ecosystem puts Apple ahead of its fragmented Android competition in terms of mobile AI technology.
The current smartphone hardware lacks the high-speed memory and advanced packaging technology that allow for fast data transfer between the application processor and memory. These limitations restrict the AI capabilities of current smartphones. Lee argues that expecting an accelerated smartphone replacement cycle now due to AI is premature.
Wall Street analysts remain generally optimistic about Apple’s prospects, with 65% recommending buying the stock and projecting a 9% rise to nearly $245 over the next 12 months. However, Lee’s more conservative outlook suggests the stock could drop about 6% to $213.
The AI race in the tech industry has intensified, with companies like Google and Microsoft rushing to release new AI chatbots and chips. Apple’s CEO Tim Cook had initially been elusive about the company’s AI plans, leading to concerns about Apple’s ability to catch up with its rivals.
Now that Apple has set its AI vision in motion, the next challenge is proving that it can monetize these artificial intelligence plans effectively.
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