On Wednesday, Apple's stock rating was downgraded for the third time in less than two weeks since the start of the year, which was undoubtedly a significant blow to the company
The latest rating downgrade comes from James Cordwell, a strategist at Redburn Atlantic, who downgraded Apple's stock rating from "buy" to "neutral", but still maintained a target price of $200 and pointed out that there is "very little room" for Apple's stock price to rise in the coming years due to concerns about slowing iPhone sales and potential regulatory resistance.
Prior to this latest rating adjustment, two other well-known investment firms, Barclays and Piper Sandler, had already downgraded Apple's stock ratings on January 2 and January 4, respectively.
Barclays' Tim Long has downgraded Apple's stock rating from equal weight to low weight, and lowered Apple's target price from $161 to $160. Piper Sandler's Harsh Kumar downgraded Apple's stock rating from overweight to neutral.
As of Wednesday's close, the stock price of this iPhone manufacturer has fallen by about 4% in the first ten days of 2024. In contrast, other companies among the seven giants in the US stock market, including Microsoft, Google, and META, saw their stock prices rise by 1.9%, 2.2%, and 4.9%, respectively.
Apple's position as the world's top market capitalization may even be taken away by Microsoft, with a current market value gap of only about $50 billion between the two.
What are the reasons why institutions downgrade Apple's rating?
Overall, Redburn Atlantic, Barclays, and Piper Sandler have all mentioned in their reasons for the downgrade of Apple's rating that Apple's iPhone and service divisions may fall into weakness.
Cordwell predicts that although sales of Apple's flagship iPhone models are expected to start growing again at some point in 2024, the uncertainty of the quarter ending in March may affect this outlook. Cordwell also stated that the continued increase in regulatory risks may also affect Apple's ability to profit from its Apple ecosystem, including antitrust concerns in Europe regarding its App Store policy.
Barclays' Long and Piper Sandler's Kumar both mentioned the sales situation in the Chinese market, which is a major focus. The new version of iPhone 15, launched in the fourth quarter of last year, has not been selling well in China so far. And Greater China is Apple's third largest source of revenue after North America and Europe.
The main viewpoint of Barclays analysts such as Tim Long is based on the weak sales of iPhones and the declining revenue trend of service categories such as App Store, Apple Music, and Apple TV+. They also stated that Apple's latest flagship product, the Vision Pro augmented reality headset, is not expected to bring significant revenue growth due to its high price.
Piper Sandler's Kumar stated that negative news surrounding the ongoing Apple Watch patent dispute and antitrust struggle may pose issues for Apple's future development.
Is there no need for excessive pessimism?
Of course, although Apple's rating has been downgraded three times by different institutions in just ten days since the beginning of the new year, for investors, excessive pessimism may not be necessary.
Wall Street as a whole has not yet fully underestimated this globally leading company by market value. Among the 53 analysts tracking Apple in the industry, 32 still maintain a buy rating and 16 maintain a hold rating. Only 5 analysts gave the stock a sell rating.
Evercore ISI analyst Amit Daryanani recently reiterated her rating that Apple will outperform the market, with a target stock price of $220.
Although he acknowledges that the earlier ban on Apple watches was somewhat troublesome, and that Apple's agreement to spend billions of dollars on Google as the default search engine for Safari browser may face risks, Apple's positive factors still outweigh negative factors. Daryanani said, "As some concerns weaken and people's attention gradually shifts towards Vision Pro, Apple's rating may show a more positive side."
Erik Woodring from Morgan Stanley stated that Apple's performance in 2024 may significantly improve.
In a statement to investors, he wrote, "We believe that not only are fundamentals recovering (although there may still be some imbalances in the near future), but more importantly, 2024 will be a year for Apple to realize its' edge AI 'opportunities. The highlights of this year include Siri 2.0 with a big language model and the broader Gen AI operating system, which may catalyze the iPhone upgrade cycle."
Apple has not yet explicitly announced the launch of generative artificial intelligence products, but instead focuses on improving the accuracy of similar features through machine learning. But according to reports, the company is working hard to integrate this technology into future products. As consumers who purchased computers in the early stages of the pandemic began seeking updated and faster systems, it is expected that sales of laptops and desktops will also rebound, benefiting Apple.