Apple slides as Goldman Sachs analysts unveil a big change to outlook

Apple  (AAPL)  shares moved lower again Friday, extending their year-to-date decline to around 3%, following a key analyst downgrade tied in part to the tech giant’s muted iPhone growth forecasts. 

Apple shares have notably underperformed their Magnificent 7 peers this year, largely as a result of the absence of a defined AI strategy at the world’s second-largest tech company. 

Fading demand metrics in China, where Apple has been selling the new iPhone 15 at a steep discount, as well as its exit from a decade-long project to build an autonomous car, have added to the downbeat tone surrounding the group.

CEO Tim Cook attempted to address some of those issues earlier this week at the group’s annual meeting in Cupertino, Calif., promising investors he would “break new ground” in AI technologies this year. Cook also teased a “major announcement” on AI when he spoke to investors following the group’s fiscal-first-quarter earnings report last month.

Cook’s comments followed the defeat of a proposal, put forward by AFL-CIO pension fund managers at the annual meeting, to disclose Apple’s AI plans and the ethical guidelines it will establish as it rolls out the technology.

Tim Cook has told investors he is ‘incredibly excited’ about Apple’s AI plans.

Analysts at Goldman Sachs, however, removed the stock from its benchmark ‘Conviction Buy List – Directors Cut’ and downgraded their rating to ‘neutral’ from ‘buy’, despite having faith in the earnings power of the tech giant’s installed base of iPhones, iPads and Macs.

Goldman: Apple facing headwinds

Goldman noted headwinds tied to product revenue, including “reduced iPhone unit demand from a lengthening replacement cycle and reduced consumer demand for the PC & tablet category.” Both those issues, the bank noted, would “more than offset … Apple’s installed-base growth, secular growth in services, and new-product innovation.”

Apple is facing a series of headwinds in China, which typically accounts for nearly a fifth of its overall revenue, as officials in Beijing move to ban the device for some government officials and state-backed company employees and intense competition from Asia-based rivals eats into its market share.

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The group is also seeing fading overall demand for its newly launched iPhone 15, which underwhelmed Apple enthusiasts last autumn and has failed to capture the consumer zeitgeist of previous upgrades.

Global iPhone sales were up 6%, surprising forecasters with a $69.7 billion total that helped overall group revenue rise just over 2% to $119.58 billion.

December-quarter figures in China, however, were disappointing, with revenue falling 13% to $20.82 billion, a tally that missed Wall Street forecasts by around $3 billion.

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In terms of profits, Apple’s fiscal-first-quarter bottom line rose 3.8% to $2.18 per share, with net income of $33.92 billion, with both totals topping analysts’ forecasts.

Cook told investors that generative AI technologies remain a “huge opportunity” for Apple, and he talked about “a lot of work going on internally” in the earnings conference call.

“Our ‘MO’, if you will, has always been to do work and then talk about work and not to get out in front of ourselves. And so, we’re going to hold that to this as well,” Cook said. “But we’ve got some things that we are incredibly excited about that we’ll be talking about later this year.”

Apple shares marked 0.36% lower pre-market trading to indicate an opening bell price of $180.10 each, a move that would extend its six-month decline to around 5%. 

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