Apple stock downgraded by Jefferies, saying “serious AI” smartphones are two years away

Apple (AAPL) was snubbed late Sunday by investment firm Jefferies (JEF). Jefferies analyst Edison Lee downgraded Apple shares to “hold” from “buy,” citing concerns about inflated expectations for the new AI-enabled iPhones.

Lee said smartphone hardware isn't yet advanced enough to support the kind of high-tech artificial intelligence analysts and iPhone consumers they're hoping for.

“Near-term expectations for the iPhone 16 and even 17 are too high,” Lee wrote in a note to investors on Sunday evening.

Big Tech companies are eager to develop innovative generative artificial intelligence technologies and secure a place in a market dominated by AI. Until this summer, Wall Street worried whether Apple would catch up with rivals like Google (GOOG) and Microsoft (MSFT), which were rushing to bring new AI chatbots and chips to market, while Apple CEO Tim Cook was unclear about the iPhone maker's AI plans. Now that Apple has put its AI vision into action with the upcoming release of Apple Intelligence, the next hurdle – like its competitors – is proving that it can monetize these artificial intelligence plans.

Apple shares fell 0.9% on Monday morning.

“Unlike AI servers, smartphones lack high-speed storage and advanced packaging technology that enables fast data transfer between AP and storage, limiting their AI capabilities,” Lee said, adding: “Because AI is now available with an accelerated “To expect a smartphone replacement cycle is, in our opinion, premature.”

Lee said it will take another two to three years for manufacturers like Apple to develop smartphone hardware capable of smoothly running artificial intelligence software.

Apple unveiled its suite of artificial intelligence tools called Apple Intelligence at its global developer conference in June. Apple's long-awaited AI debut and the announcement of a partnership with OpenAI sent shares soaring to record highs. That has more than assuaged investor concerns about Apple's barrage of bad news earlier this year, from sluggish iPhone sales and layoffs to clashes with antitrust regulators at home and abroad. Bank of America (BAC) analyst Wamsi Mohan predicted a future in which Apple's AI-enabled “Intelliphones” would dominate the market.

But Apple's initial launch of its iPhone 16, which comes with hardware to run Apple Intelligence features rolling out starting this month, has so far disappointed Wall Street. Analysts say demand for Apple's latest smartphone is weaker than for previous iPhone launches, citing delivery times as a metric. While both new and existing Apple customers want to buy the iPhone 16 for its faster connectivity, fewer cited Apple's upcoming AI features as a motivating factor, according to JPMorgan's (JPM) latest consumer survey.

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Of course, Apple is well positioned to lead the AI ​​smartphone market in the future, Lee said. Lee said Apple is “the only integrated hardware-software provider that can leverage proprietary data to deliver low-cost, personalized AI services.”

“We believe AAPL is a leader in mobile AI technology and its integrated chip-OS AI ecosystem is well ahead of the fragmented Android competition.”

About 65% of Wall Street analysts covering Apple recommend buying the stock and expect the stock to rise about 9% to nearly $245 over the next 12 months. Lee expects the stock to fall about 6% to $213.

Laura Bratton is a reporter for Yahoo Finance.

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