Jefferies cut Apple from hold to underperform on Monday. That is the bank’s equivalent of a sell rating. It also cut its price target from $285.56 to $263.66.
Fortune’s Sebastian Herrera reported the call. The bank’s supply-chain checks produced three reasons. Apple has cancelled a rumoured all-glass iPhone, memory prices are surging, and there is little visible progress on AI.
The first of those is the one that matters. That handset was expected next year, for the iPhone’s 20th anniversary.
The cancelled phone is the argument
Jefferies put its reasoning plainly. “We believe this shows that introducing new form factors in the iPhone to drive higher [average selling price] is more difficult than expected.”
Average selling price is the lever Apple has pulled for a decade. A new shape justifies a higher number on the sticker. Cancel the shape and the lever goes with it.
That leaves the foldable iPhone, which Apple may reveal next month. Jefferies expects it to be the company’s only margin driver. Memory costs push the bank’s estimate to $2,199 for the 256GB version and $3,099 for the 2TB version.
Those are laptop prices on a phone. They are also an argument that the margin has to come from somewhere.
Memory is eating the hardware business
The cost of computer memory is why Apple raised prices on Macs and iPads. AI data centres are absorbing the supply. Tim Cook signed off his final earnings call with a warning about a “hundred-year flood” in memory chip pricing.
Most of the DRAM supply sits with three companies. Micron, SK Hynix and Samsung control it, a concentration Cook has lamented in public.
Apple has been looking for a way around that. The Wall Street Journal reported that it is testing memory from China’s CXMT. Buying Chinese memory chips at scale could draw objections from the White House.
Six sell ratings, and the last time was 2012
Bloomberg counts at least six firms now carrying sell-equivalent ratings on Apple. That matches a high last seen in 2012, shortly after the death of Steve Jobs.
Jefferies is not the first bank to move this summer. KeyBanc Capital Markets cut Apple to underweight in July, on iPhone demand.
Edison Lee, the Jefferies analyst behind the call, took the argument further on Bloomberg Tech. Apple, he told Ed Ludlow, is no longer the “king of the supply chain”.
The other side of the trade
Not everyone reads six sell ratings as a reason to sell. CNBC’s Investing Club published its counterpoint the same afternoon. Its headline told readers not to let a Wall Street downgrade scare them out of the stock.
Apple also disputes the AI leg of the case. Cook has framed the company’s on-device approach as a deliberate advantage rather than a gap.
“The ability to run some percentage of requests on-device is also very strategic, sort of a competitive weapon if you will,” he said.
Investors have been less patient. They were already running out of patience with Apple’s AI promises before this downgrade landed.
Ternus inherits the argument next month
John Ternus takes over as chief executive next month, succeeding Cook. Apple’s annual iPhone event is expected in early September. The foldable is expected with it.
He arrives with two demands running at once. One is the margin story. The other is product, and the company has spent the past year rebuilding the design team after a run of senior departures.
The quarter was fine. That is the point.
Apple’s July guidance put iPhone sales at mid-teens percentage growth this quarter. The iPhone is roughly half the business. That is a deceleration from 22% growth in the quarter just ended, and Apple warned that gross margins would come under pressure.
Growth at that rate is not a crisis, and Jefferies is not arguing that it is. The argument is narrower than the headline suggests.
If price rises have to carry the margin, the ceiling on what Apple can charge becomes the investment case. The only new shape left is a foldable starting at $2,199. That is a great deal of weight for one handset to hold.
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