Apple slips on second Wall Street downgrade tied to iPhone-demand concern

Apple  (AAPL) - Get Free Report shares extended declines Thursday, taking the stock to the lowest levels since early November, following another Wall Street downgrade tied to concern about iPhone demand.

Piper Sandler analyst Harsh Kumar lowered his rating on Apple to neutral from overweight. He argued that iPhone revenue growth rates – which account for more than half Apple's revenue – have likely peaked, given weak demand in China and elevated inventory levels. 

Kumar also lowered his price target on Apple stock by $15, to $205 a share.

“We are concerned about handset inventories entering into [first-half 2024] and also feel that growth rates have peaked for unit sales," Kumar wrote, adding that "difficult [comparisons] from 2023 paired with constant currency headwinds are expected to continue in 1H24 with interest rates remaining elevated.”

Kumar's downgrade follows a harsher note on Apple stock earlier this week from Barclays analyst Tim Long. He cut his rating on the stock to underweight, citing a lackluster iPhone 15 launch, as well as a muted rebound in Mac and iPad demand.

Apple shares were marked 0.94% lower in premarket trading to indicate an opening bell price of $182.52 each. Such a move would tip the stock further into negative territory for the past six months. 

The stock touched an all-time high of $199.62 in mid-December.

China risk 'fictional': Wedbush's Ives

Apple told investors in November that holiday-quarter sales would likely be flat with last year's $117 billion total, a forecast that fell shy of Wall Street forecasts of a 5% gain.

That took some of the shine off of a solid, but by no means spectacular, fiscal-fourth-quarter earnings report, which showed a fourth consecutive sequential revenue decline and big pullbacks in Mac, iPad and Apple Watch sales. 

Another notable area of weakness in Apple's quarterly report came from China, where sales fell 2.5% from the year-earlier period to $15.1 billion.

The drop came amid reports that Beijing banned the use of iPhones by government employees and state-backed enterprises in order to support the launch of state-backed tech group Huawei's new Mate 60 handset.

But Apple CEO Tim Cook struck an upbeat tone on the region's prospects in his conference call with analysts, noting that "we had the top four selling phones in Urban China for last year. I just took a trip over there and could not be more excited about the interactions I had with the customers and employees and others."

Wedbush analyst Dan Ives, a noted Apple bull who carries an overweight rating on the stock, says China-demand weakness is a "great fictional story by the bears which is far from the reality" based on his firm's tracking of December-quarter sales.

"Apple remains our Top Tech Pick with a strong iPhone 15 upgrade cycle playing out with a strong and a 'no drama' holiday season, which appears humming into 2024 despite the growing noise and Huawei competition in China," he said in a recent client note.

"We also believe the Services business is now back to steady double-digit growth and is worth between $1.5 trillion to $1.6 trillion on a stand-alone basis," he added. 

"In a nutshell, 2024 is the year for Cook & Co. to show iPhone growth again and further monetize its golden installed base that Cupertino has built."

• Get exclusive access to portfolio managers and their proven investing strategies with Real Money Pro. Get started now.