Needham downgrades Apple on weak iPhone cycle, AI lag and overvaluation concerns; share falls

Apple Inc. extended its slide in early trading on Wednesday, after investment firm Needham became the latest to downgrade the stock, citing intensifying concerns over the company’s growth trajectory, position in the artificial intelligence race, and geopolitical headwinds.

Shares of the iPhone maker fell 0.6% in premarket trading.

The stock has now dropped 19% in 2025, making it the worst-performing member of the so-called Magnificent Seven—a group of tech giants that includes Microsoft, Amazon, Nvidia, Meta, Alphabet, and Tesla.

Needham downgraded Apple to hold from buy, with analyst Laura Martin pointing to “expensive” valuations and a worrying lack of innovation in generative AI.

She noted that Apple’s hardware ecosystem could be increasingly vulnerable as rivals pursue new form factors powered by AI.

“For this stock to work, it must have the catalyst of an iPhone replacement cycle, which we do not foresee in the next 12 months,” Martin wrote, adding that innovations with generative artificial intelligence — an area where Apple has been lacking — “open the door for new hardware form factors that threaten iOS devices.”

The downgrade adds to a growing list of analysts turning cautious.

Earlier this year, Jefferies, Rosenblatt Securities, Oppenheimer, MoffettNathanson, Loop Capital, Aletheia Capital, and DBS Bank also cut their ratings or price targets on Apple.

As of now, less than 60% of Bloomberg-tracked analysts recommend buying the stock—a stark contrast to Microsoft or Nvidia, where the buy ratio exceeds 90%.

AI and competition drive long-term concerns

Martin warned that Apple’s relative lack of native AI capabilities is beginning to erode its competitive edge.

Rivals such as Meta and Google-parent Alphabet are already experimenting with AI-powered devices like smart glasses, which could eventually threaten the primacy of smartphones.

"Because Apple has a 15%-30% take rate of revs [revenue] earned on its hardware, every Big Tech company is building platforms designed to displace Apple's integrated hardware and software products in a GenAI world," Martin wrote.

Further highlighting the growing competitive pressure, OpenAI recently acquired io, a startup co-founded by former Apple design chief Jony Ive, signalling a push into next-generation device ecosystems that could bypass Apple’s current hardware structure.

Despite achieving 5% revenue growth in its most recent quarter, Apple continues to lag its tech peers.

Amazon, Alphabet, and Meta have all posted double-digit growth, fuelled by strong demand for cloud services, advertising, and AI innovation.

Counterpoint slashes 2025 global smartphone shipment

Separately, research firm Counterpoint revised down its 2025 global smartphone shipment growth forecast to 1.9%, from 4.2% previously.

The downgrade was driven by “renewed uncertainties surrounding US tariffs” and weakening demand in key regions including North America, Europe, and Asia.

For Apple, the firm now expects 2.5% shipment growth this year, down from a previous estimate of 4%.

Samsung’s shipment outlook was cut to zero growth, from an earlier projection of 1.7%.

While smartphones were temporarily excluded from US President Donald Trump’s new round of tariffs in April, uncertainty continues to cast a shadow.

Apple, which manufactures 90% of its iPhones in China, has been shifting more production to India in a bid to diversify.

However, that too has invited scrutiny.

Last month, Trump criticized Apple’s growing reliance on India, stating he prefers the company to manufacture iPhones in the United States.

Though Apple has significantly ramped up shipments from its Indian facilities, the threat of shifting trade policy remains a lingering risk.

“All eyes are on Apple and Samsung because of their exposure to the US market,” said Liz Lee, Associate Director at Counterpoint Research.

“Although tariffs have played a role in our forecast revisions, we are also factoring in weakened demand.”