Apple Inc. was downgraded by two analysts, a further sign that weak iPhone sales are increasingly causing investors concern that artificial intelligence has failed to play an expected role as a growth catalyst. Apple shares fell 4.3% on Tuesday. The world's largest company by market capitalization had a bad start to the year, falling 11% so far in January, heading towards its largest monthly decline since December 2022. Apple shares are down nearly 14% from their December peak.
Loop Capital downgraded Apple to hold, and Jefferies downgraded the stock to underperform, becoming the rare company to give the company the equivalent of a sell rating. Only 8.5% of analysts have a bearish rating, while about 63% give it the equivalent of a buy rating.
Jefferies analyst Edison Lee wrote in a report that recent iPhone sales have been weaker than expected.
Citing third-party surveys, Lee said, "U.S. consumers have yet to find AI features on their phones useful, which means Apple is unlikely to launch a super upgrade cycle soon. Given these trends, he expects Apple's first-quarter outlook may be disappointing."
Loop also mentioned concerns about iPhone weakness, predicting that iPhone demand will drop significantly starting in the March quarter and will be further amplified in the next two quarters. Analyst Ananda Baruah wrote that while the drivers behind the previous buy rating could still materialize, it certainly won't happen in the next nine months.
Apple is scheduled to report first-quarter results next week.
Affected by the downgrade, Apple's consensus recommendation index measuring the ratio of buy to sell hold ratings was only 4.2 points (out of 5 points), the lowest since May, and the highest in August was around 4.3. Just over 60% of analysts tracked by Bloomberg recommend buying the stock, well below other large technology stocks, which recommend buying more than 80% or even 90% of the time.
On Monday, Morgan Stanley listed Seagate Technology as its preferred IT hardware stock, replacing Apple.