Jefferies Downgrades Apple Stock Amid Supply Chain Concerns
On Monday, Jefferies, the prominent Wall Street investment bank, issued a downgrade for Apple Inc., reducing the company’s stock rating to a “sell” equivalent.
This decision stems from recent supply chain evaluations indicating that Apple has abandoned plans for an innovative all-glass iPhone, initially anticipated to commemorate the device’s 20th anniversary in 2027.
In its reappraisal, Jefferies shifted its rating on Apple from “hold” to “underperform,” simultaneously adjusting its price target downward to $263.66 from the prior $285.56.
This adjustment reflects a projected decline of approximately 16% from the stock’s closing price of $313.33 on Friday.
This downgrade follows a preceding reduction in the price target, initially lowered from $308.92 to $285.56 in response to Apple’s fiscal third-quarter earnings and its subsequent fourth-quarter guidance.
Notably, Jefferies had maintained a neutral stance on the stock as recently as July 31 before adopting a more pessimistic outlook.
Analyst Edison Lee conveyed in a note to clients that Jefferies’ supply chain insights suggest that the much-speculated all-glass iPhone, initially expected for release in September 2027, “has been canceled due to low yield.”
He characterized this decision as “a significant setback” in Apple’s ambition to introduce higher-priced iPhones in a market burdened by escalating memory costs.
According to Lee’s analysis, Apple intended to promote the all-glass design across its entire iPhone lineup, extending its appeal from the base model to the more lucrative Pro and Pro Max variants.
This strategy aimed to elevate average selling prices and profit margins for Apple’s premium product range.
With this plan now seemingly shelved, Jefferies has revised its projection for the compound annual growth rate of iPhone average selling prices between fiscal years 2026 and 2031 to 6.8%, down from 9%.
Furthermore, earnings-per-share estimates for fiscal years 2028 and 2029 have been decreased by approximately 2% and 3%, respectively.
Speculation surrounding the all-glass iPhone design had circulated since at least 2025, with many anticipating a generational design shift reminiscent of the iPhone X, released a decade ago.
Although Apple has refrained from officially commenting on these rumors, a patent application submitted in 2019 detailing a six-sided glass enclosure had stoked anticipation within industry circles.
With the all-glass model seemingly off the table, Lee pointed out that the forthcoming foldable iPhone represents Apple’s foremost opportunity in the near term to enhance pricing and profit margins.
He projected that the device, slated for a September 2026 launch, could start at around $2,199 for a 256-gigabyte model, with the premium 2-terabyte version potentially priced at $3,099.
However, Lee cautioned that surging memory costs induced by increasing artificial intelligence demands might further inflate pricing on upcoming devices, consequently limiting the foldable’s potential to enhance overall average selling prices across Apple’s iPhone portfolio.
Additionally, Lee highlighted a notable uptick in iPhone trade-in values within the U.S. and European markets.
While these developments could bolster demand for the current iPhone 17 generation, they might also lead to more challenging sales comparisons and heightened pressure upon the release of the iPhone 18 lineup.
On Monday, Apple shares dipped by 1.53%, closing at $308.26. This decline occurred after showing a modest intraday increase of 0.41% before retracting those gains.
The stock has managed to recover approximately 2.5% since hitting a recent low, following a near 10% decrease post the company’s latest quarterly earnings report.
During a separate segment on Bloomberg Tech, Lee expanded upon his critique of Apple, asserting that the company no longer holds the title of “king of the supply chain,” indicating broader doubts regarding Apple’s manufacturing capabilities as it enters a consequential multi-year product cycle.
Nonetheless, not all analysts on Wall Street shared this dire outlook. CNBC’s Investing Club presented a contrasting viewpoint, urging investors not to permit a single downgrade to dissuade them from holding the stock.
This downgrade arrives concurrently with ongoing scrutiny over Apple’s artificial intelligence strategy, an area where the company has faced consistent inquiries about its pace of advancement compared to competitors.
Chief Executive Tim Cook has previously defended Apple’s approach, emphasizing the intention to execute AI processes directly on devices, rather than primarily relying on cloud-based systems.
Cook has framed this strategy as a deliberate choice, arguing that handling a significant share of AI requests on-device serves as a “strategic competitive weapon.”
The timing of Jefferies’ downgrade coincides with a critical leadership transition at Apple, as long-time executive John Ternus prepares to assume the role of chief executive next month, succeeding Cook.
This transition amplifies scrutiny on Apple’s upcoming product decisions, including design strategies, pricing frameworks, and AI developments, amid intense competitive and cost pressures in the smartphone market.
While the all-glass iPhone appears to be sidelined, subsequent reports following Jefferies’ announcement suggest that Apple remains committed to a comprehensive design revamp for its iPhone Pro lineup, anticipated for release next year.
Thus, the company’s broader redesign intentions may not be entirely forsaken, even though the specific all-glass concept seems to have been abandoned.
As Apple shares continue to trade significantly above Jefferies’ updated price target, investor focus is likely to concentrate on how the company navigates its roadmap leading to 2027, manages the implications of rising component costs stemming from the global memory chip shortage, and whether the forthcoming foldable iPhone can deliver the premium pricing power once associated with the now-abandoned all-glass redesign.
Source link: Ibtimes.com.au.
