Oppenheimer downgrades Apple, cites weakening iPhone sales and AI innovation worries

Apple is having it hard. Oppenheimer downgraded it from “outperform” to “perform” amidst weak sales. The reason behind this is that the tech giant is struggling to adapt to a competitive AI landscape. 

The brokerage has removed its $250 price goal because it sees weak iPhone sales in the next year to a year and a half. Oppenheimer’s concerns are a lack of innovation in AI and difficulties in the Chinese market. In fact, there was a 25% drop in iPhone shipments in China last quarter. 

Oppenheimer stated, “This resulted in a year-to-year market share decline from 19% to 15%.” The company added that Apple’s capacity to expand in the region will be restricted by competition from local Android manufacturers.

The company also expressed doubt about Apple’s capacity to initiate an AI-driven upgrade cycle in the near future. It stated, “Given the gradual rollout of Apple Intelligence, lack of gen AI ‘killer apps’ for consumers, and rapid improvement of other gen AI models’ capabilities, we expect a slower-than-expected iPhone replacement cycle leading into FY26.”

Apple’s shares are expected to drop

Oppenheimer reduced its profits per share estimate for the year 2026 by 4% to $7.95 – less than the average estimate of $8.23. The company now thinks Apple’s sales will be $438 billion in FY26, lower than the earlier prediction of $456 billion. 

The retail brokerage company explained that the primary reason for its estimate revisions is the reduction of iPhone sales estimates for FY25-26. The estimated growth in iPhone shipment growth for FY25 has been reduced from 5% to 2%. In addition, the growth outlook for FY26 remains at 2%.

Analyst Martin Yang said that Apple is dealing with two main problems affecting iPhone sales: more competition in China and not enough interesting AI apps.

Martin Yang has also raised concerns that Apple struggles to show how its software and services are different from its hardware. He bases this estimate on the delayed rollout of Apple Intelligence, the scarcity of consumer applications for generative AI, and the rapid improvement of other AI models’ capabilities. 

Meanwhile, today, shares of the tech giant remained low in early trading. They lost 1.5% of their value after Oppenheimer downgraded them. 

However, most analysts still think Apple’s stock will do well. Out of 48 analysts, 32 suggest buying or strongly buying the stock. 

Apple’s stock is currently valued at 29.2 times its expected profits for the next year. It is much higher than its average of 20.4 times over the past 10 years. Oppenheimer argues there is little upside for Apple right now, making it hard to explain its high price.

Apple is expected to report muted revenue growth – Here’s why

For status, Apple and its competitors Samsung and Google have been relying on AI features to increase smartphone sales. When Apple released its latest iPhone, it didn’t have those features. Also, some AI services haven’t launched in certain areas yet. This means less revenue. 

According to reports, Apple had problems with its AI this month when news sources like the BBC reported that the company’s AI summary tool was creating wrong headlines. Apple later took away the tool from its operating system.

Jane Hepburne Scott, investment manager at Aegon Asset Management, which owns shares in the tech giant said, “AI is the new technology innovation, the fact that Apple’s handsets are lagging behind on capabilities is a key reason why their competitive positioning has weakened and the company has lost market share.”

In addition, the Chinese government is giving money to help people buy smartphones to boost spending in the country. However, these subsidies are only for budget to mid-range phones that cost less than $800. This means high-end iPhones are not included. Of course, iPhones will sell less.

Moreover, Apple can’t add AI features to the iPhone 16 in China. The government requires companies to get permission before launching such products, which has led Apple to seek agreements with Chinese companies to launch its AI feature.

That’s not all. Apple is having problems in a key smartphone market. Indonesia has banned the iPhone due to the country’s content rules. Apple suggested investing $1 billion in Indonesia’s manufacturing sector. However, the government said that amount is not enough to meet a rule that requires 40% of the material in devices to come from local sources.

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