By Mackenzie Tatananni

Apple stock has a "decidedly unattractive" outlook, MoffettNathanson analyst Craig Moffett said, lowering his rating on the shares and cutting his target for the price.

Moffett downgraded Apple to Sell from Hold and trimmed his price target to $188 from $202. Shares fell 0.8% to $243.13 on Tuesday.

When MoffettNathanson initiated coverage of the stock in August, the equity research firm concluded that Apple's "ultimate success in AI" was already reflected in the price, Moffett wrote in Tuesday's note.

The stock's valuation at the time was already high, he said, failing to factor in risks such as Apple's dimming prospects in China and reflecting not just a surge in people upgrading their iPhones but a "permanent uplift" in the rate of phone replacement.

Now, Moffett appears even less optimistic, pointing to a "lukewarm" consumer response to Apple's suite of artificial intelligence features.

Apple officially launched Apple Intelligence in October, coinciding with the release of iOS 18.1. The AI uses multiple generative models to power writing tools, transcribe phone conversations, and draft emails, among other functions.

"Not only have we not seen any sign of an upgrade cycle, but we have seen growing evidence that consumers are unmoved by AI functionality," Moffett wrote, noting that this applies to Apple as well as its competitors. "Meanwhile, fully agentic AI, the foundation of any real bull case for Apple, seems further away now than it did even five months ago," he said.

Agentic AI acts autonomously and is able to make decisions without constant human intervention. The best-known options on the market include Palantir's AIP and Salesforce's Agentforce.

Apple made headlines last month when it approached a $4 trillion market capitalization, but fell short. Reaching that milestone would have made Apple the first member of an exclusive club, beating out peers despite their faster growth. Apple's market cap was around $3.7 trillion on Tuesday.

In his analysis, Moffett pointed to "a steady drumbeat of bad news" including a federal judge's ruling that Google violated antitrust law by striking deals with Apple to be the default search provider on its devices.

"Apple is a truly great company, and they are the purveyors of truly amazing products," Moffett wrote, lauding the company's management team and "compelling" low-capital-expenditure AI strategy. However, he said, the share price "discounts nothing but good news."

"Its growth rate is by far the lowest of the Mag Seven, and yet its multiple is the highest," Moffett wrote. "The outlook for Apple's shares, given this challenging backdrop, is, unfortunately, decidedly unattractive, in our view."

Wall Street has, for the most part, taken a more bullish stance. Analysts polled by FactSet currently rate the stock at Overweight with a consensus price target of $250.08.

One of the most outspoken bulls is Wedbush's Dan Ives, who reiterated an Outperform rating on the stock in late December.

Before Tuesday's downgrade, MoffettNathanson had maintained a Hold rating on Apple stock since initiating coverage on Aug. 19.

The stock has risen nearly 8.3% since MoffettNathanson began covering it.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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January 07, 2025 12:20 ET (17:20 GMT)

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