Apple stock hit with downgrade by Needham analysts, citing stiff AI competition

June 4, 2025

Apple (AAPL) stock was downgraded to Hold from Buy by Needham analysts who said the stock is overvalued amid growing AI competition.

Analyst Laura Martin explained in a note to clients Wednesday that Apple is currently trading at a more expensive multiple than it has historically, just as the rise of generative AI threatens to disrupt the iPhone maker’s businesses.

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Apple is currently the worst-performing stock of its “Magnificent Seven” Big Tech peers, down roughly 18% for the year. The company has faced lagging sales in China and a sluggish smartphone market. The stock was hit with two downgrades in January from Jefferies and Loop Capital.

Shares, which stood just above $200 on Wednesday, are priced at roughly 26 times the company’s projected 2026 earnings, a multiple 50% above its 10-year average and 25% above the current average forward-year 2026 price-to-earnings ratio for the S&P 500 (^GSPC), Martin noted.

“We believe that, 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. “Until then, we believe that $170-$180/share is a better entry level.” She also said Apple could accelerate growth by deciding to “aggressively pursue an advertising revenue stream.”

Needham’s downgrade comes as the smartphone market at large is experiencing a slump: Counterpoint Research on Wednesday lowered its 2025 annual growth forecast for global smartphone shipments to 1.9% from 4.2%, citing uncertainties related to US tariffs.

Meanwhile, Apple is facing growing competition in AI. Martin wrote that “every Big Tech company is building platforms designed to displace AAPL’s integrated hardware and software products in a GenAI [generative artificial intelligence] world.”

That includes Meta’s AI smartglasses, as well as OpenAI and Jony Ive’s development of a new mystery AI hardware device that could offer an AI alternative to smartphones, the analyst said.

Apple also doesn’t reap the benefits of AI Cloud revenue like its competitors.

“While peers like Microsoft (MSFT), Google (GOOG), and Meta (META) are launching foundational models and GenAI-native platforms, AAPL still lacks a competitive LLM [large language model] or a developer ecosystem around GenAI capabilities,” Martin wrote.

In April, Apple stock’s 200-day moving average rose above its 50-day moving average, a phenomenon called a “death cross.”

“This pattern is typically viewed as a bearish signal, indicating continued downward momentum,” Martin wrote.

The company faces other risk factors, such as the potential threat of losing $20 billion in annual revenue from Google as the Alphabet-owned (GOOGL, GOOG) tech giant awaits final orders from US Judge Amit Mehta in its landmark antitrust case. Apple is also staring down its own antitrust case.

Apple is also getting pressured on the supply side: Trump is threatening a 25% tariff on its iPhones unless the company shifts production to the US, a process that could take more than five years.

The company’s culture may not help as it grapples with myriad challenges. Martin said in her note, “AAPL believes that it makes its own weather. This philosophy reflects a deep-seated cultural belief that AAPL operates on its own terms, largely independent of external trends, competitive pressures, or even macroeconomic conditions.”

The analyst said she worries that Apple’s culture “[b]reeds complacency, which lowers urgency just as GenAI disruption threatens to re-tool the entire US economy,” and “[m]akes AAPL slow to acknowledge negative shifts in the regulatory environment and rising geopolitical risks.”