Apple (AAPL) was snubbed by the investment company Jefferies (JEF) late Sunday. Jefferies analyst Edison Lee downgraded Apple shares from Buy to Hold, citing concerns about inflated expectations for its new AI-enabled iPhones.
Lee said smartphone hardware is not yet advanced enough to accommodate the kind of high-tech artificial intelligence that iPhone analysts and consumers are hoping for.
“Near-term expectations for iPhone 16 and even iPhone 17 are too high,” Lee wrote in a note to investors Sunday evening.
Big tech companies have been racing to innovate generative artificial intelligence technologies and secure their place in an AI-dominated market. Until this summer, Wall Street worried about whether Apple could catch up to competitors such as Google (GOOG) and Microsoft (MSFT), which has rushed to launch new chatbots and AI chips, while Apple CEO Tim Cook has remained elusive on the iPhone maker’s AI plans. Now that Apple has implemented its AI vision with the upcoming release of Apple Intelligence, its next hurdle – like its competitors – is proving that it can monetize these artificial intelligence plans.
Apple stock fell 2.3% on Monday.
“Unlike AI servers, smartphones lack high-speed memory and advanced packaging technology that allows rapid data transfer between the access point and memory, thus limiting their AI capabilities,” Lee said, adding: “Expecting an accelerated smartphone replacement cycle now thanks to AI is premature, in our opinion.
Lee said it would take another two to three years for manufacturers like Apple to create smartphone hardware that can smoothly run artificial intelligence software.
Apple unveiled its suite of artificial intelligence tools, called Apple Intelligenceto his Worldwide Developers Conference in June. Apple’s long-awaited AI debut, plus the reveal of a partnership with OpenAI, has propelled the stock to record highs. This more than eased investors’ concerns about Apple’s deluge of bad news earlier in the year – from struggling iPhone sales And layoffs has clashes with antitrust regulators in the country And abroad. Bank of America (BAC), analyst Wamsi Mohan predicted a future in which Apple’s artificial intelligence “Intelphones” dominate the market.
But Apple’s initial launch of its iPhone 16, equipped with the hardware needed to run its Apple Intelligence features that begin rolling out this month, has so far Wall Street disappointed. Analysts say demand for Apple’s latest smartphone is weaker than it was after previous iPhone launches, citing delivery times as an indicator. As new and existing Apple customers look to buy the iPhone 16 for its faster connectivity, fewer cited Apple’s upcoming AI features as a motivating factor, according to JPMorgan (JPM) most recent consumer survey.
Certainly, Lee said Apple is well-positioned to dominate the AI smartphone market in the future. Lee said Apple “is the only integrated hardware-software player capable of leveraging proprietary data to deliver low-cost personalized AI services.”
“We believe AAPL is the leader in mobile AI technology, and its integrated chip-OS-AI ecosystem puts it far ahead of fragmented Android competition.”
About 65% of Wall Street analysts covering Apple recommend buying the stock and see shares rising about 9% to near $245 over the next 12 months. Lee expects the stock to fall about 6% to $213.
Laura Bratton is a reporter for Yahoo Finance.
Click here for the latest stock news and in-depth analysis, including the events that move stocks.
Read the latest financial and business news from Yahoo Finance