Analysts downgrade Apple's stock as questions outpace answers

Needham has downgraded its rating on Apple stock to “Hold” because it sees more risks to its earnings and tougher competition. Analysts also believe its stock is too expensive. In light of these concerns, Needham trimmed its forecasts for Apple’s fiscal 2025 results.

The analysts now predict earnings of $7.06 per share, down from their prior estimate of $7.13. They expect revenue growth to lag behind competitors. Despite the iPhone maker’s large installed base and strong brand image, they see fewer reasons for profit momentum ahead.

According to a report by CNBC, the key worry is valuation. AAPL is trading at over 26 times its projected 2026 earnings, a level about 50% above its 10-year average and well above the overall market multiple.

“This multiple is at the high end of its Big Tech peers, despite slower growth,” analyst Laura Martin said in a Wednesday note.

Compared with Apple, companies like Alphabet and Amazon appear better positioned to gain from the rise of generative AI and the scale of cloud infrastructure. Needham’s team suggests that these peers may outpace Apple in growth over the coming years, making its lofty valuation harder to justify.

Needham highlights growing threats to core businesses

Smartphone demand is slowing in key markets, the company’s $20 billion-a-year search deal with Google faces uncertainty, and potential tariffs on iPhones could hurt profitability. Each of these factors could weigh on Apple’s top and bottom lines.

In China, Apple’s revenue is under pressure due to geopolitical tensions, less brand appeal, and stronger competition from local makers. The analysts estimate that if tariffs were fully enforced, they could shave $0.80 off Apple’s earnings per share, underscoring how trade policy could impact the company’s bottom line.

In the longer term, new product formats from rivals pose a strategic challenge to the iPhone’s dominance. Examples include Meta’s smart glasses and a venture by former Apple design chief Jony Ive with OpenAI.

Based on technical analysis, Needham estimates that the AAPL stock carries $20 to $30 of downside risk from its current levels, compared to about $15 of possible upside. The firm suggests that a more reasonable entry range would be $170 to $180 per share. The iPhone maker’s shares closed at $203.27 on June 3.

Apple’s uncertain future sparks debate between bulls and bears

The political climate has certainly changed for CEO Tim Cook, but for investors, the core story remains rooted in Apple’s track record and future prospects as reported by Yahoo Finance.

In May, the Magnificent Seven together accounted for 62% of the S&P 500’s gain, while the index itself rose 6.2%. Apple was the only one of those names to trail the benchmark, and its stock has fallen nearly 20% so far this year.

As Bank of America analysts led by Wamsi Mohan noted, “Apple is seen as a defensive investment where even in challenging times, it meets or slightly beats consensus forecasts, and isn’t prone to big guidance misses.”

This resilience gives investors confidence that Apple can weather economic uncertainty.

Another reason bulls like the AAPL ticker is that it gives money back to shareholders. By buying its own stock and paying dividends, it keeps its earnings steady. By repurchasing tens of billions of dollars of its own stock each year, Apple can boost earnings per share even if revenue growth stalls. Few companies can match that scale of cash generation and financial engineering.

On the other hand, bears admit Apple is big, but say it might be a slow giant past its best days.

As Mohan wrote, “Bears question whether Apple has a ‘next big thing’ on the horizon that can re-ignite substantial growth, or if the company is now essentially at the maturity stage of its innovation cycle, relying on incremental improvements and accessories.”

They point to signs of slowing momentum in the services segment, which had been a key growth driver. As smartphone sales mature and upgrade cycles lengthen, Apple has leaned on services revenue, like streaming and app subscriptions, to offset weaker hardware sales. Bears say it’s unrealistic to expect endless growth here, even with new shows featuring stars like Jon Hamm.

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