Apple Stock Gets Another Downgrade as Iphone Doldrums Persist

A mere four days into the new year, Apple Inc. finds itself grappling with its second downgrade, casting a shadow on the tech giant's outlook for 2024. Piper Sandler analyst Harsh Kumar recently downgraded Apple's stock (AAPL) from overweight to neutral, citing concerns related to valuation and pressures within the smartphone market. Kumar expressed apprehensions about handset inventories in the initial half of the year, anticipating a plateau in the growth rates of unit sales, a significant concern considering that iPhones contribute roughly 50% to Apple's overall revenue.

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Despite Apple's positive performance in the iPhone segment during the September quarter, the company witnessed sales decline in two of the four quarters of its latest fiscal year. Kumar's worry extends to China, where he anticipates the "deteriorating macro environment" to further impact Apple's handset business. Additionally, legal uncertainties surrounding the Apple Watch and other areas could potentially divert investor attention.

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Apple's current stock valuation, trading at approximately 29 times forward earnings, surpasses the five-year average multiple of around 24, according to Kumar. Consequently, he adjusted his price target for Apple from $220 to $205 in his latest report. This downgrade follows closely on the heels of Barclays analyst Tim Long, who on Tuesday shifted to an underweight stance from his previous neutral position on Apple.

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Pre-market trading on Thursday saw Apple shares decline by 0.7%, marking a continuation of the downward trend observed in the preceding three full trading days. Kumar's concerns about the broader smartphone market prompted him to downgrade shares of other technology companies, including Microchip Technology Inc. (MCHP), Macom Technology Solutions Holdings Inc. (MTSI), Qorvo Inc. (QRVO), Skyworks Solutions Inc. (SWKS), and Akoustis Technologies Inc. (AKTS) from overweight to neutral.

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In his commentary on Skyworks, Kumar highlighted macro handset pressure as the primary concern, emphasizing that Apple has historically executed its strategies flawlessly. However, Kumar displayed optimism towards Micron Technology Inc. (MU), upgrading its stock rating from neutral to overweight. He cited the potential for accelerated pricing benefits and noted that South Korean rivals have been reducing production, a move expected to rebalance industry supply and demand.

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As a result of Kumar's positive outlook, Micron's stock saw a rise of about 1% in Thursday's premarket activity. He adjusted Micron's price target from $70 to $95, underlining the positive shift in sentiment towards the company. In the complex landscape of the tech market, Apple's recent downgrades and the ripple effects on related stocks underscore the dynamic nature of the industry, where macroeconomic factors and market trends can swiftly influence investor confidence and strategic decision-making.