Jefferies upgrades Apple stock after pullback, cuts estimates, PT on macro risks

Published 09/04/2025, 08:14
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Investing.com -- Jefferies has lowered its estimates and the price target (PT) on Apple Inc (NASDAQ:AAPL) amid global recession risks and a softer AI outlook but upgraded the stock to Hold from Underperform following its recent pullback.

The investment bank has cut its iPhone shipment forecasts by 3.6%, 7.7%, and 5.5% for fiscal years 2025 (FY25), 2026, and 2027, respectively, citing concerns about a global recession affecting demand.

The firm’s revenue predictions for those years have been lowered by 2%, 4.1%, and 3.5%, respectively, as well as earnings per share (EPS) estimates, which now sit below the consensus by 2.5%, 8.5%, and 3.4% for the same fiscal years.

Concurrently, Jefferies’s Discounted Cash Flow (DCF)-based PT on Apple shares was slashed to $167.88 from $202.33.

“Our base case remains that AAPL would be exempted from U.S. tariffs, given its commitment to invest $500bn in the U.S. over the next four years, and our belief that it would make additional manufacturing investment commitment in the U.S. (to make iPhone, for example),” analysts led by Edison Lee said in a note.

“However, a rising risk of global recession could further impact already-weak iPhone demand,” they added.

The analysts forecast price hikes for upcoming iPhone models due to increased hardware costs associated with additional memory and new technology. They predict a $50 increase for the iPhone 18 in 2026 (excluding the base model) and a $100 increase for all models of the iPhone 19 in 2027.

Another key factor driving the estimates cut is concerns over AI traction. The analysts see two noteworthy headwinds facing AI on smartphones, including the iPhone.

First, they highlight “a lack of fast DRAM and advanced packaging solutions, which limits the AI model size.”

Second, restricted access to app data hampers the understanding of user behavior.

“We believe the hardware needed to run bigger AI models on smartphones will be commercialized in 2027, and we assume AAPL will be the first smartphone OEM to adopt that (iPhone 19),” the analysts wrote.

However, the second headwind is a more structural challenge, given the fragmented nature of the app ecosystem. Most major players, such as Google (NASDAQ GOOGL) and Meta (NASDAQ:META), may be reluctant to share user data with Apple, analysts said.

As a result, they have cut their AI revenue forecasts starting from fiscal year 2028 by adjusting the installed base assumptions to only include iPhone 19 and beyond, and by reducing the expected paying penetration rates from 50%-75% to 20%-50%.

Despite the upgrade to a Hold rating, the analysts stress that Apple's current valuation is not considered cheap, with a price-to-earnings growth (PEG) ratio of 2.2x for fiscal year 2025.

The firm also outlined potential downside risks to Apple's DCF value, which could drop to approximately $150 if the company were subjected to a 54% tariff on products manufactured in China. If tariffs were to increase further, the impact on EPS and DCF value could be even more significant.

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