Apple Inc. received a rare downgrade to “sell” from Wall Street investment firm MoffettNathanson on Tuesday, marking a significant shift in sentiment toward the world’s largest company. The firm downgraded Apple from “neutral” and established a $188 price target, representing a potential 22% downside from current trading levels around $242.43.
The downgrade is particularly notable given that only four of the more than 60 analysts covering Apple on Wall Street maintain sell or sell-equivalent ratings, according to Bloomberg data. This makes MoffettNathanson’s bearish stance a clear outlier in the analyst community.
Craig Moffett, senior analyst at MoffettNathanson, acknowledged that while Apple remains a “truly great company,” its stock price has experienced an unwarranted rise despite overwhelmingly negative news flow. The analyst pointed to several concerning developments, including a federal judge’s ruling that Alphabet’s $25 billion in annual payments to Apple for Google’s default search position on the iPhone is illegal, weakness in China iPhone sales, and disappointing performance from the company’s Vision Pro headset.
However, the most significant concern centers on lukewarm sales of the iPhone 16, even as Apple rolls out new AI software updates through its Apple Intelligence platform. “Not only have we not seen any sign of an upgrade cycle, something that would be concerning enough on its own, but we have seen growing evidence that consumers are unmoved by AI functionality,” Moffett stated in his downgrade note.
The analyst’s concerns are compounded by Apple’s valuation, which sits near historical extremes. Despite being one of the most expensive Magnificent Seven stocks, Apple has posted the slowest growth rate among this elite cohort of technology companies. This disconnect between valuation and performance creates an unfavorable risk-reward profile for investors.
Moffett emphasized that the current market setup would only make sense “if iPhone 16 was blowing the doors off expectations or if Apple Intelligence was credibly foreshadowing a truly massive Services opportunity.” Instead, he noted that many of the risks that concerned analysts in August have only intensified, even as the broader market rally has lifted Apple shares. The firm concluded that “the outlook for Apple’s shares, given this challenging backdrop, is, unfortunately, decidedly unattractive.”
Key Quotes
Despite the steady melt-up in Apple shares over the past few months, there has actually been a steady drumbeat of bad news
Craig Moffett, senior analyst at MoffettNathanson, highlighted the disconnect between Apple’s rising stock price and deteriorating fundamentals, suggesting the market has ignored warning signs.
Not only have we not seen any sign of an upgrade cycle, something that would be concerning enough on its own, but we have seen growing evidence that consumers are unmoved by AI functionality
Moffett identified the core problem with Apple’s AI strategy—consumers aren’t responding to AI features as a compelling reason to upgrade their iPhones, undermining the company’s growth narrative.
Perhaps all this would all make sense if iPhone 16 was blowing the doors off expectations or if Apple Intelligence was credibly foreshadowing a truly massive Services opportunity
The analyst explained that Apple’s premium valuation could only be justified if its AI initiatives were driving exceptional results, which they clearly are not.
The outlook for Apple’s shares, given this challenging backdrop, is, unfortunately, decidedly unattractive, in our view
Moffett’s conclusion summarizes the firm’s bearish stance, suggesting that the combination of weak AI adoption, valuation concerns, and negative news flow creates an unfavorable investment opportunity.
Our Take
This downgrade represents a critical reality check for AI hype in consumer technology. Apple’s inability to drive iPhone upgrades through AI features suggests that consumers may view AI as a “nice-to-have” rather than a “must-have” capability. This challenges the assumption that AI integration automatically translates to revenue growth.
The timing is particularly significant as it comes amid broader questions about AI monetization across the technology sector. While enterprise AI applications have shown clear value propositions, consumer AI remains unproven. Apple’s struggle may signal that the consumer AI revolution will take longer to materialize than markets have priced in.
Moreover, this highlights a fundamental challenge: AI features need to solve real problems consumers care about, not just showcase technological capability. Until AI delivers tangible, everyday benefits that justify premium pricing or device upgrades, adoption may remain tepid regardless of how sophisticated the underlying technology becomes.
Why This Matters
This downgrade carries significant implications for the AI industry and technology sector as a whole. Apple’s struggle to generate consumer enthusiasm for AI-powered features in the iPhone 16 suggests that mainstream adoption of AI functionality in consumer devices may be slower than anticipated. This challenges the prevailing narrative that AI integration would drive a massive smartphone upgrade cycle.
The lukewarm response to Apple Intelligence raises critical questions about how consumers actually value AI capabilities in everyday devices. If Apple—with its massive marketing power and loyal customer base—cannot convince users to upgrade for AI features, other smartphone manufacturers may face similar challenges. This could force the entire industry to recalibrate expectations around AI-driven hardware refresh cycles.
For investors, this represents a potential inflection point in AI investment thesis. The disconnect between Apple’s premium valuation and its actual AI-driven growth suggests the market may be overestimating the near-term revenue impact of AI features. This could have broader implications for how AI capabilities are valued across the technology sector, potentially affecting valuations of other companies banking on AI to drive growth.
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