Apple's (AAPL) stock was downgraded to be held from purchases by Needham analysts, who said the stock was overvalued in the growing AI race.
Analyst Laura Martin explained in a note to clients on Wednesday that Apple is currently trading more expensive than historical multiples, just as the rise of BioAI threatens to undermine the iPhone Maker's business.
Apple is currently the worst performing stock among its "outstanding seven" large technology peers, about 18% of the year. The company faces lagging sales in China and the smartphone market is slow. The stock was downgraded twice in January from Jefferies and Loop Capital.
Martin noted that the stock was just over $200 on Wednesday, priced at about 26 times the company’s expected 2026 earnings, 50% higher than its 10-year average and above the current year forward 2026 average 2026 average value of 500 (^GSPC).
“We think that to make the stock work, it must have the catalyst for the iPhone replacement cycle, which we won’t foresee in the next 12 months,” Martin wrote. “Up until then, we think $170 to $180 per share is a better entry level.” She also said Apple could accelerate growth by deciding to “actively pursue a source of advertising revenue.”
Needham’s downgrade comes as the entire smartphone market is experiencing a downturn: Wednesday’s Counterpoint study lowered its annual growth forecast for global smartphone shipments by 1.9% from 4.2% due to uncertainty related to U.S. tariffs.
Meanwhile, Apple is facing growing competition from AI. "Every big tech company is building a platform for integrated hardware and software products designed to replace AAPL in the Genai world," Martin wrote.
Analysts said that including Meta's AI smart mirror, and Openai and Jony Ive developed a new Mystery AI hardware device that could provide an AI alternative to smartphones.
Apple also does not gain the benefits of AI cloud revenue like its competitors.
"Although peers like Microsoft (MSFT), Google (GOOG) and Meta (Meta) are launching the base model and the Genai-Native platform, AAPL still lacks a competitive LLM (big language model) or Genai's developer ecosystem around Genai's capabilities," Martin wrote.
In April, Apple Stock's 200-day moving average rose its 50-day moving average, a phenomenon known as the "death cross."
"This pattern is often seen as a bearish signal, indicating a continued downward momentum," Martin wrote.
The company faces other risk factors, such as the potential threat of losing $20 billion in annual revenue from Google as letter-owned (GOOGL, GOOG) technology giant awaits the final order of U.S. Judge Amit Mehta. Apple is still staring at its antitrust case.
Apple is also under pressure on supply: Trump threatens to impose a 25% tariff on its iPhones unless the company transfers production to the U.S., a process that could take more than five years.
The company's culture may not help, as it deals with numerous challenges. "AAPL considers it to be its own weather. This philosophy reflects a deep cultural belief that AAPL operates in its own terms and is largely independent of external trends, competitive pressures, and even macroeconomic conditions."
The analyst said she was concerned about Apple's culture "(b) reed complacency, which reduces urgency, just as Genai's interference has the potential to reintegrate into the entire U.S. economy, and "(M) AKES AAPL slowly acknowledges negative changes in the regulatory environment and increases geopolitical risks. ”
Laura Bratton is a reporter for Yahoo Finance. Follow her on bluesky @laurabratton.bsky.social. Email her to laura.bratton@yahooinc.com.
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