Apple’s valuation is starting to look expensive, and investors should steer clear, according to Needham. The investment firm downgraded the iPhone maker and “Magnificent Seven” stock to hold from buy. Analyst Laura Martin also removed her $225 price target, which implied upside of 10.7%. “We move to the sidelines for AAPL owing to its expensive relative valuation, increasing fundamental growth headwinds, and rising competitive threats,” she wrote. “We believe that, for AAPL shares to work, they must have the catalyst of an iPhone replacement cycle, which we do not foresee in the next 12 months. Until then, we believe that $170-$180/share is a better entry level for AAPL shares.” Apple closed Tuesday’s session at $203.27. Martin noted that Apple’s forward multiple of 26 times earnings is high relative to its Big Tech peers despite the company’s slower growth and is roughly 50% above its 10-year average. AAPL YTD mountain AAPL YTD chart “The other 3 Big Tech companies we cover reported 2x-3x faster rev growth and 3x-12x faster margin expansion than AAPL for the March quarter, suggesting that AAPL’s premium valuation vs Big Tech peers is at risk,” Martin added. “Most of the Big Tech competitors we cover have articulated a strategic vision that replaces AAPL’s ecosystem.” These strategic visions include Meta Platforms and Google both working on glasses as the next form factor that could replace smartphones. On the other hand, Apple recently canceled its augmented reality glasses project. While glasses may not catch on, Martin pointed to Chief Design Officer Jony Ive’s move to OpenAI as another headwind for Apple. Ive was involved in the design of core iOS hardware products including the iPhone, iPad, Macbook and Apple Watch. “Ive has said that he wants to move consumers away from screens entirely, which is intriguing. By implication, he will design a new form factor that will not be glasses or a smartphone. If his newly invented form factor catches on with consumers, META and GOOGL will fast-follow in an effort to displace AAPL, we believe,” Martin wrote, adding that Apple may react too slowly to stop this shift from taking place. Martin pointed to Google as Apple’s best-positioned competitor given its status as the dominant incumbent seller due to its Android operating system. Generative artificial intelligence also serves as a disruptive technological force, and Google has invested more than 25 years in building out capabilities within foundational AI. Apple also faces an increasing number of threats toward its iPhone and Services revenue streams, per Martin. These include slowing smartphone demand, driven by reduced consumer spending and tariff-induced uncertainty, alongside increasing regulatory and litigation risks. Apple is also at risk of losing the $20 billion it receives annually from Google to maintain its status as Safari’s default search engine. Shares of Apple have tumbled 19% this year. They fell slightly in the premarket following the downgrade. Despite Martin’s rating change, most analysts covering the stock are bullish. Of the 51 who cover it, 34 rate it a buy or strong buy, per LSEG. Another 12 have a hold rating on it.
