Apple Faces Headwinds: Barclays Downgrades Tech Giant Amid Concerns Over iPhone Sales and Hardware Weakness
Barclays has issued a cautionary note to investors as 2024 commences, downgrading Apple, the world's most valuable company and a key player in the 'Magnificent Seven.' The bank shifted its rating on the tech giant from equal weight to underweight, concurrently reducing the price target from $161 to $160—a move that implies a potential 17% downside over the next 12 months. Apple's shares responded with a 1.7% decline in premarket trading following the announcement.
Analyst Tim Long pointed to weaknesses in iPhone sales volumes, as well as underperformance in Macs, iPads, and wearable devices, as the primary drivers behind the downgrade. Long expressed skepticism about the iPhone 15, citing lackluster performance, and anticipates a similar trajectory for the upcoming iPhone 16. Concerns extend to other hardware categories, with services growth not expected to exceed 10%.
Long emphasized that the combination of ongoing weak results and multiple expansion is not sustainable, indicating a potential reversion after a year of stock outperformance. Additionally, he highlighted the increased risk for Apple's services business, particularly Apple Pay, in the coming year.
While Apple exceeded analyst expectations in its fiscal fourth-quarter results, showing strong sales and earnings per share, it marked the fourth consecutive quarter of overall sales decline. As a crucial member of the 'Magnificent Seven,' Apple's fortunes play a significant role in the broader market, potentially impacting the S&P 500, which witnessed robust gains in 2023.
In 2023, Apple recorded a substantial 48.2% surge, its most significant annual gain since 2020. As part of the 'Magnificent Seven,' any stumbling by Apple could exert pressure on the S&P 500, which soared by 24% in the preceding year. The downgrade reflects concerns about Apple's ability to sustain its momentum and navigate challenges in the competitive tech landscape.
Barclays' decision to downgrade Apple, the linchpin of the tech industry and a vital member of the 'Magnificent Seven,' signals a cautious start to 2024 for investors. The bank's concerns, led by analyst Tim Long, revolve around perceived weaknesses in iPhone sales, coupled with underwhelming performances in Macs, iPads, and wearables. The downward adjustment in Apple's rating and price target, anticipating a 17% downside, has already triggered a 1.7% decline in premarket trading.
Long's skepticism regarding the iPhone 15 and the anticipated challenges for the iPhone 16, along with restrained growth projections for other hardware categories and Apple's services business, underpins the rationale for the downgrade. The sustainability of Apple's stock outperformance, coupled with concerns about a potential reversion, underscores the uncertainties in the tech giant's trajectory.
As a cornerstone of the 'Magnificent Seven,' Apple's fortunes bear weight on the broader market, and any hiccups in its performance could ripple through the S&P 500. The downgrade prompts a reevaluation of Apple's ability to maintain its remarkable momentum and navigate the evolving landscape of the tech sector in the year ahead. Investors now face a critical juncture, closely monitoring Apple's response to challenges and the subsequent impact on the broader market dynamics.
