‘iPhone 16’ and 3 other reasons Barclays gave for ‘downgrading’ Apple

Barclays downgraded Apple stock, causing a 3.6% drop to a seven-week low. The company now has its most bearish recommendations in …
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Apple stock has not started on a great note. The company’s shares fell nearly 3.6% to a seven-week low on January 2 after Barclays downgraded the shares of the world’s most valuable company. Barclays is the second brokerage to have the equivalent of a “sell” rating on the stock, which now has its most number of bearish recommendations in at least two years, according to LSEG data.

Barclays has published a new research note with its expectations on Apple. In the report, Barclays analysts say that their research shows “weakness on iPhone volumes and mix, as well as a lack of bounce-back in Macs, iPads, and wearables.” Apple has been grappling with a demand slowdown since early last year and has forecast holiday-quarter sales below Wall Street estimates. Its performance in China has also been a worry after the revival of local rival Huawei. With that in mind, Barclays has slightly lowered its price target for Apple stock from $161 per share to $160 per share.

Here are the highlights from the Barclays report:

* iPhone 16 may not be compelling enough: The note says that it expects continued iPhone weakness through the launch of the iPhone 16. Our checks remain negative on volumes and mix for iPhone 15, and we see no features or upgrades that are likely to make the iPhone 16 more compelling.

* Little growth in Mac and iPad segments: Mac and iPad need to revert further to pre-Covid levels. These two products combined were basically showing no growth pre-Covid, but are still running 20-30% above those levels despite the rest of the industry correcting, says the note.

* Growth falling om services: The note sees growth deceleration in Services, with regulatory risk ramping. We model ~10% and ~8% growth in Services in FY24 and FY25, well below prior growth estimates of ~20%. In 2024, we should get an initial determination on the Google TAC, and some app store investigations could intensify.

* Diminishing returns on the Apple ecosystem: “AAPL remains a very strong ecosystem, moving from Mac-driven to iPhone-driven over the last decade. We believe there is less ecosystem pull-through with new products/services, which will make growth harder over the next several years,” added the note.

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