Jefferies analyst Edison Lee on Monday downgraded the investment bank's rating on Apple (AAPL) stock to "underperform," and cut his price target on Apple stock by 13% to $200.75. Loop Capital also downgraded Apple stock to hold from buy and lowered its price target to $230 from $275.

Lee said in an investor note that he expects Apple to report lower-than-expected December quarter results and lower-than-expected second-quarter results due to weak iPhone sales and a lack of consumer interest in artificial intelligence.

Apple shares fell 3.7% in midday trading on Tuesday. The stock has gained 16% in the past 12 months. Big tech rivals Meta (META) and Alphabet (GOOG, GOOGL) are up about 36% and 30%, respectively, last year, while Microsoft (MSFT) is up just 3.5%. During the same period, the broader S&P 500 index rose 20%.

Lee said iPhone sales in China were down 15% to 20% year-on-year. Apple faces a number of headwinds in the region, including the continued rise of local products from Huawei and Xiaomi and cautious consumer spending amid a slowing economy.

Apple doesn't just have to deal with troubles in China. According to Canalys and IDC estimates, the iPhone's overall market share fell by about 1% to 23% year-on-year in the fourth quarter. This was despite a 3% increase in smartphone shipments, Canalys reported.

Jefferies predicts that first-quarter iPhone revenue will fall 0.4% year-on-year, while Apple's total sales will increase 2.8%, lower than the company's previous forecast of 4.6%.

Part of Apple's problem, Lee believes, is that the company's big push into artificial intelligence hasn't panned out the way investors had hoped. Apple Intelligence, Apple's artificial intelligence platform for iPhone, iPad and Mac, is expected to kick off a sales supercycle. But if IDC and Canalys' predictions prove correct, it will throw cold water on the growth of artificial intelligence sales.

Apple began rolling out Apple Intelligence in batches in October. It's a risky move for Apple, which typically unveils its latest and greatest products and services all at once with large, splashy launches. That makes it difficult for customers to know when the platform will have all the features Apple originally promised when it first launched Apple Intelligence in June 2024.

Despite a strong sales push from tech giants like Apple, Google, Microsoft and Intel, AI-powered smartphones and their AI-powered PC counterparts have struggled to gain traction.

Apple's iPhone is its most important product, and China is one of its most important sales regions. In 2024, of Apple's total revenue of US$391 billion, iPhone will account for US$201.1 billion. The company's second-largest business segment, Services, brought in $96.1 billion in revenue.

The story continues