Apple’s stock plunged over 4% on January 4th after receiving its second downgrade this week from Wall Street analysts worried about softening demand for the iPhone. The downgrade knocked over $100 billion off Apple’s market valuation, sparking a big sell-off in tech stocks.
Barclays Cuts Apple Rating Over Lack of Innovation in iPhone 16
On January 2nd, Barclays was the first to downgrade Apple, slicing its price target to $160 from $161. Barclays analyst Tim Long cited concerns about the upcoming iPhone 16 lacking any “must-have” innovative features that would compel existing iPhone owners to upgrade.
Long believes the iPhone 16 will offer few changes beyond support for 6G networks and a new processor. With the iPhone 15’s adoption already tracking below expectations, Long thinks iPhone sales could drop by 5 million units next year if the iPhone 16 proves underwhelming to consumers.
“The iPhone 15 cycle is shaping up to be a muted one… We don’t expect any meaningful spec changes until the iPhone 17 later this year,” Long wrote in a note.
The table below summarizes the key details behind Barclays’ downgrade:
| Downgrade Details | |
|---|---|
| Firm | Barclays |
| Analyst | Tim Long |
| Previous Price Target | $161 |
| New Price Target | $160 |
| Reasoning | iPhone 16 won’t have enough compelling new features to drive upgrade sales. Expects iPhone sales to drop by 5 million units next year. |
Barclays believes the next “supercycle” iPhone upgrade won’t arrive until 2025 with the iPhone 17, which may finally bring features like an under-display Touch ID and 3nm processors.
Piper Sandler Echoes Demand Worries
The concerns raised by Barclays prompted a second downgrade just two days later from Piper Sandler. Analyst Harsh Kumar sliced Apple’s stock rating to neutral from overweight while leaving his $195 price target unchanged.
In his note, Kumar cited Barclays’ points about slowing iPhone demand as well as increasing risks in Apple’s services business from a potential recession in 2023. Kumar expects iPhone sales to decline by 5% year-over-year in Apple’s 2023 fiscal year.
“Though the magnitude of the iPhone slowdown is hard to determine accurately at this point, we believe that the risks of the slowdown are not fully appreciated by investors,” Kumar wrote.
Here are the key details on Piper Sandler’s downgrade:
| Downgrade Details | |
|---|---|
| Firm | Piper Sandler |
| Analyst | Harsh Kumar |
| Previous Rating | Overweight |
| New Rating | Neutral |
| Price Target | Unchanged at $195 |
| Reasoning | Concerns over slowing iPhone demand raised by Barclays. Also worries about impact of a 2023 recession on services revenue. |
Apple Shares Sink 4.3%, Tech Stocks Follow Suit
The double downgrade news sent Apple shares sinking 4.3% on January 4th to close at $125.07, erasing over $100 billion in market value. Apple suppliers like TSMC also fell over 3% on the day.
The plunge in Apple reignited worries about inflation and higher interest rates dragging on Big Tech in 2023. Meta and Alphabet each tumbled over 4% as the tech-heavy Nasdaq sank 3.3% for its biggest drop since December 15th last year.
What’s Next for Apple?
While Apple CEO Tim Cook has warned about economic weakness, the company will need to energize its iPhone upgrades or risk revenue declines in 2023. Upcoming earnings on January 25th will offer critical insight into current demand trends.
Most analysts remain bullish on Apple long-term due to its loyal installed base and growing services business. And early leaked images of the iPhone 15 Pro show Apple is planning some changes like USB-C and thinner bezels to spur upgrades later this year.
But if the U.S. enters a recession in 2023, even Apple won’t be immune from spending cutbacks by consumers and enterprises. While the stock looks attractive following this week’s drubbing, worse may be ahead if the economy continues to weaken.
For now, Piper Sandler’s Kumar recommends investors stay neutral on Apple given the demand uncertainties. And with the stock still trading at 25x earnings despite the rout, valuation risks remain given the growth challenges.
Until Apple can deliver that next big iPhone breakthrough innovation, its days of explosive growth may be over. Cook & Co. will need to rely on services, wearables, and new categories like augmented reality to pick up the slack.
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