KeyBanc Downgrades Apple On New Growth Slowdown Fears

Apple shares fell 1% in premarket trading after KeyBanc Capital Markets downgraded the iPhone maker to “Underweight” from “Sector Weight” and set a 12-month price target of $250. This implies roughly a 21% decline from Monday’s close, putting the stock in bear-market territory.

The downgrade by KeyBanc analysts Brandon Nispel and John Vinh is based on a widening disconnect between Apple’s valuation and its underlying growth outlook. They cite soaring memory chip prices, which are pushing iPhone, Mac, and iPad prices higher. This increases the risk of demand destruction, slower unit sales, and a softer upgrade cycle.

At roughly 35 times forward earnings, Nispel warned that Apple’s valuation leaves little room for a slowdown:

We downgrade AAPL to Underweight ($250PT; 19x ’27 EV/EBITDA, 27.5x PE).

Our KFLD shows Indexed Spending -2% m/m, which is below the three-year avg of +9% m/m, another month of below-trend growth.

We think expectations NT are reasonable though we see: 1) slowing iPhone builds with price increases, weak U.S. upgrades, and changing device subsidy models; 2) ’27 expectations that likely need to move lower for Mac, iPad, and Wearables; and 3) as unit growth likely slows, so will the growth in Apple’s user base, likely pressuring Services. At 35x PE, we think AAPL is too expensive for this to occur

In mid-June, Apple CEO Tim Cook told the WSJ in an exclusive interview that price hikes were “unavoidable” because of the memory chip crunch.

While Apple doesn’t report gross profit margins for individual products, TechInsights research suggests the margin on the $1,099 iPhone 17 Pro was a tidy 47%. Based on estimated costs, to maintain that profit margin for the iPhone 18 Pro, the company would have to charge $1,371. Because the company likes standardized pricing, the starting price tag would more likely be $1,299, yielding a 44% gross profit.

And this calculation doesn’t account for a potential new camera system that will also cost Apple about 50% more than previous models, according to supply chain analyst Ming-Chi Kuo. In that case, following the same math, Apple could set the starting price of the iPhone 18 Pro at $1,399, or higher.

KeyBanc’s view that consumers may push back on an upgrade cycle because of rising device prices – due in part to the memory chip crunch – is not the best news ahead of the iPhone 18 Pro and foldable iPhone launches in September.

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