Analyst: Apple is too expensive; buy Amazon or Alphabet instead
Needham analysts cut Apple’s buy rating Wednesday, citing valuation and competitive threats.
Analysts at Needham axed their rating on Apple Wednesday, lowering the iPhone maker to “hold” from “buy,” in light of growing competitive threats from AI and sluggish iPhone sales (which got what may have been merely a tariff-fueled bump last quarter), both of which are tough to square with a premium valuation. They wrote:
“AAPL’s integrated hardware and software ecosystem has best-in-class moats, we believe. However, AAPL is not immune to technological disruption, which is what GenAI represents, in our view. Because AAPL has a 15%-30% take rate of revs earned on its hardware, every Big Tech company is building platforms designed to displace AAPL's integrated hardware and software products in a GenAI world.”
Among other issues, they spotlight Apple’s capex expenditures — skimpy by the standards of so-called hyperscalers like Microsoft and Meta — as an indication that the company is complacent about the long-term AI threat.
They also zero in on a global smartphone market slowdown as being a more proximate problem for sales and profits over the next year, as well as potential hits from regulatory shifts such as recent antitrust decisions in the US that could impact their services revenue.
All of these issues make it hard to justify the multiple of 26x earnings over the next 12 months that the market is putting on the shares, Needham analysts said.
Google parent Alphabet, for example, has a multiple of just 17x, while Meta, which is expected to grow at a much faster rate (14% vs. Apple’s 5%), trades at roughly the same valuation as Apple.
“We caution that AAPL has material risks to its revenue growth, margins, and valuation multiple,” they wrote, adding, “We prefer Alphabet and Amazon to Apple.”
