Wall Street's Apple euphoria 'misplaced,' Jefferies analyst says
Apple ( AAPL ) is reportedly preparing to launch its newest iPhone SE sometime next week, and it looks like it’s found its AI partner — Alibaba ( BABA ) — to help it roll out Apple Intelligence in China. Things appear to be looking up for the tech giant.
And that’s translated to a slight reprieve for the company’s stock, which is up just more than 1% over the last five days compared to a decline of 6% year to date.
But at least one analyst isn’t holding his breath. Jefferies equity research analyst Edison Lee says the market optimism surrounding the latest developments out of Cupertino is misplaced.
“We reiterate our cautious view of [Apple], despite imminent launch of [the iPhone SE] and a potential AI deal with [Alibaba],” Lee wrote in a note to investors Wednesday.
According to Bloomberg’s Mark Gurman , Apple will launch its latest iteration of the entry-level iPhone SE sometime next week. The phone is said to cost somewhere between $400 and $500 and feature a design similar to the iPhone 14, complete with Face ID facial recognition, a larger display, and a more powerful processor.
Beyond its low price point, which is several hundred dollars less than the $799 iPhone 16, the iPhone SE’s biggest feature will be the inclusion of Apple Intelligence, Apple’s generative AI platform. The service provides a number of AI capabilities including notification summaries, writing tools, and photo editing functionality. It also has a more advanced version of Siri that works alongside OpenAI’s ChatGPT.
By offering Apple Intelligence on a lower-cost iPhone, the thinking goes, Apple will attract more users to the platform, driving greater interest among consumers. But whether that happens is difficult to know.
Apple Intelligence is the main attraction of Apple’s iPhone 16 lineup but hasn’t been the smash hit Wall Street was hoping it would be.
Apple CEO Tim Cook told investors during the company’s latest earnings call that iPhone sales were higher in areas where Apple Intelligence is available. Morgan Stanley Research analyst Erik Woodring, however, wrote in an investor note on Tuesday that the software only provided a small tailwind to iPhone sales during the quarter.
Instead, Woodring said, sales were probably driven by “US consumers accelerating purchases of the discounted 1-year old iPhone 15 Pro/Pro Max.” Those phones, along with the iPhone 16 line, are the only ones that can use Apple Intelligence at the moment.
In his note, Lee wrote he remains cautious of the iPhone SE’s potential because it will reportedly only include a single rear camera. He also doesn't see Apple Intelligence as a major selling point yet and says smartphone sales in China are already falling following the Lunar New Year.
There’s also the matter of whether Apple’s reported AI partner in China will make a difference in sales. According to The Information , the iPhone maker is working with Alibaba to get Apple Intelligence up and running in the country. But Lee said Apple will have issues leveraging app data from its first-party apps to serve up helpful user data via Apple Intelligence since Chinese smartphone users tend to use third-party local apps.
“Therefore, Apple will likely find it hard to leverage app data to create differentiated services,” he wrote.
Apple's China sales have been stubbornly difficult to crack in recent quarters. Revenue in the region topped out at $18.5 billion in the latest quarter , below expectations and short of the $20.8 billion the company saw during Q1 2024. Full year 2024 revenue out of the region came in at $66.9 billion, down from $72.5 billion.
Not everyone is down on Apple’s AI opportunity in China, though.
Deepwater Asset Management managing partner Gene Munster said the Alibaba partnership should reduce the company’s headwinds in the region, but Apple still has to execute on the basics to ensure Apple Intelligence is a success.
“Apple’s path forward in China will depend on how well it integrates AI into its devices, navigates growing nationalist sentiment, and adapts its pricing strategy to match shifting consumer behaviors,” he wrote in a note to investors.
Apple Intelligence is still a way off from becoming the kind of must-have product Apple hopes it will become, but as it adds capabilities over time, it could work out to become a solid offering. The Apple Watch was panned when it was first released, as were the company’s AirPods, but both have become key pieces of its empire.
Now the company just has to figure out how to make using the platform as necessary to its users as its other successful products.
@DanielHowley .