- Jefferies downgraded its iPhone shipment forecasts by 3.6%, 7.7%, and 5.5% and revenue estimates by 2%, 4.1%, and 3.5% for fiscal years 2025, 2026, and 2027, respectively, while slashing Apple’s price target to $167.88 from $202.33 amid global recession risks.
- Despite upgrading Apple to a ‘Hold’ rating, the firm cut EPS estimates by 2.5%, 8.5%, and 3.4% below consensus for the same years and anticipates price hikes of $50 for the iPhone 18 in 2026 and $100 for the iPhone 19 in 2027 due to rising hardware costs.
- AI revenue forecasts from 2028 were reduced, with paying penetration rates lowered to 20%-50% from 50%-75%, reflecting challenges like limited AI model size and restricted app data access, though Apple’s $500 billion U.S. investment may mitigate tariff risks.
Jefferies has recalibrated its outlook on Apple (APPL), adjusting its financial forecasts and slashing the price target to $167.88 from $202.33, reflecting a cautious stance amid global recession risks and a tempered view on AI-driven growth. The Wall Street firm trimmed iPhone shipment estimates by 3.6% for fiscal year 2025, 7.7% for 2026, and 5.5% for 2027, while revenue projections fell by 2%, 4.1%, and 3.5% for the same years, driven by concerns over weakening demand in an uncertain economic climate. Earnings per share estimates were also cut, landing 2.5%, 8.5%, and 3.4% below consensus for fiscal years 2025, 2026, and 2027, respectively, signaling a more conservative outlook for Apple’s profitability.
Despite these downward revisions, Jefferies upgraded Apple’s rating to ‘Hold’ from ‘Underperform,’ buoyed by the stock’s recent pullback and the firm’s belief that Apple’s $500 billion investment pledge in the U.S. over the next four years could shield it from punitive tariffs. Analysts, led by Edison Lee, argue that additional U.S. manufacturing commitments, potentially including iPhone production, might further insulate the company, though they warn that a global recession could exacerbate already softening iPhone demand. On the pricing front, Jefferies anticipates hardware cost pressures will drive a $50 price hike for the iPhone 18 (excluding the base model) in 2026 and a $100 increase across all iPhone 19 models in 2027, reflecting the integration of advanced memory and technology.
The AI landscape presents a mixed bag for Apple, with Jefferies identifying significant hurdles that prompted cuts to AI revenue forecasts starting in fiscal year 2028. The firm points to a lack of fast DRAM and advanced packaging solutions, limiting AI model size on smartphones, alongside restricted app data access that hampers user behavior insights—challenges compounded by reluctance from giants like Google (GOOG) and Meta (META) to share data. While the analysts expect Apple to lead the charge in adopting hardware for larger AI models with the iPhone 19 in 2027, they’ve adjusted AI revenue assumptions, lowering the expected paying penetration rate from 50%-75% to 20%-50% and tying forecasts to the iPhone 19 installed base onward.
Valuation remains a point of contention, with Apple’s price-to-earnings growth ratio at 2.2x for fiscal year 2025 deemed expensive by Jefferies, even after the ‘Hold’ upgrade. Downside risks loom large, particularly if U.S. tariffs materialize at 54% on China-made products, potentially dragging the discounted cash flow value to $150 and further eroding EPS if tariffs escalate beyond that threshold. The interplay of these factors – recession fears, AI headwinds, and tariff uncertainties – paints a complex picture for Apple, balancing its robust U.S. investment strategy against a backdrop of global economic and technological challenges.
Price Action: As of the latest check, Apple shares were down 1.93% in premarket trading at $169.10. The $2.59 trillion market cap company remains 31% in the red year to date.
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