Apple (AAPL) was snubbed by investment firm Jefferies (JEF) late Sunday. Jefferies analyst Edison Lee downgraded Apple’s stock from “buy” to “hold,” citing concerns about inflated expectations for new AI-powered iPhones.
Lee said smartphone hardware is not yet advanced enough to handle the kind of high-tech artificial intelligence that analysts and iPhone consumers are expecting.
“Short-term expectations for iPhone 16, and even 17, are too high,” Lee wrote in a note to investors Sunday night.
Big Tech companies have been racing to innovate generative artificial intelligence techniques and secure a foothold in AI-dominated markets. Until this summer, Wall Street was worried about Apple’s ability to keep up with rivals like Google (GOOG) and Microsoft (MSFT), which are rushing to release new AI chatbots and chips, while Apple CEO Tim Cook said the iPhone The manufacturer’s AI plans remained elusive. . Now that Apple has kicked off its AI vision with the upcoming release of Apple Intelligence, the next hurdle is to prove that it can monetize these artificial intelligence plans just like its competitors.
Apple stock fell 2.3% on Monday.
“Unlike AI servers, smartphones lack high-speed memory and advanced packaging technology that enables high-speed data transfer between AP and memory, which limits AI capabilities,” Lee said. “It is difficult to predict that the smartphone replacement cycle will accelerate due to AI,” he added. In our view, it is too early. ”
Lee said it will take another two to three years for manufacturers like Apple to develop smartphone hardware that can run artificial intelligence software smoothly.
Apple announced a suite of artificial intelligence tools called Apple Intelligence at its Worldwide Developer Conference in June. In addition to Apple’s long-awaited AI debut, the company’s announcement of a partnership with OpenAI also pushed its stock price to an all-time high. That more than assuaged investors’ concerns over Apple’s spate of bad news earlier this year, from weak iPhone sales and layoffs to clashes with domestic and international antitrust regulators. . Wamsi Mohan, an analyst at Bank of America (BAC), predicted a future where Apple’s AI-powered Intelliphone will dominate the market.
But the initial launch of Apple’s iPhone 16, which includes the hardware to run Apple Intelligence features that begin rolling out this month, has so far disappointed Wall Street. Analysts point to shipping times as an indicator that demand for Apple’s latest smartphones is weaker than after previous iPhone releases. JPMorgan (JPM)’s latest consumer research shows that both new and existing Apple customers are considering purchasing the iPhone 16 for faster connectivity, but not for Apple’s upcoming AI features. Few customers cited this as a motive.
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Indeed, Lee said Apple is well positioned to lead the AI smartphone market in the future. Lee said Apple is “the only company with integrated hardware and software that can leverage its unique data to deliver low-cost, personalized AI services.”
“AAPL is a leader in mobile AI technology, and we believe its integrated chip, OS and AI ecosystem puts it well ahead of its fragmented Android competition.”
About 65% of Wall Street analysts covering Apple recommend the stock as a buy, and expect the stock to rise about 9% over the next 12 months to near $245. Lee expects the stock to fall about 6% to $213.
Laura Bratton is a reporter for Yahoo Finance.
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