Apple has gotten a rare downgrade. Is its stock overvalued?

Analyst Needham declined to advise buying shares of technology giant Apple and took a neutral stance. She called them overvalued amid increasing competition and regulatory pressure. Needham even expressed fears that Apple's ecosystem could be displaced by more innovative AI devices from rivals in the future if the company fails to adjust to the changing market in time. Since the beginning of the year, Apple's stock has been an outlier among the «Magnificent Seven» players.

Needham analyst Laura Martin downgraded Apple's stock from «buy» to «hold» and dropped her $225 target price, which implied a 10% upside, reports CNBC. Martin said she decided to take a wait-and-see stance on the company's securities because of increasing headwinds to further growth and growing competition.

«For Apple stock to keep rising, it needs a driver in the form of a new iPhone replacement cycle, which is unlikely in the next year. Until then, the $170-$180 per share range looks like a more reasonable entry point in our view,» the analyst said in a note cited by CNBC. Apple is currently trading at $203. Martin believes these securities are overvalued compared to other bigtechs whose earnings are growing two to three times faster, she said.

The Needham analyst warns that future product innovation from rivals could deprive the iPhone maker of a significant portion of the market if it reacts too slowly to changes. «Most of Apple's rivals have already presented a strategic vision that could replace its ecosystem,» Martin noted. For example, while Meta and Google are developing smart glasses that could become a new form of personal devices, Apple, on the other hand, has canceled the same project.

It's not a given that glasses will be the mass alternative, but Needham points to another troubling signal for the company: a collaboration former Apple chief designer Jony Ive's collaboration with OpenAI - together they intend to create a new gadget scheduled for release in 2026. «Ive has stated that he wants to do away with screens as an interface entirely, which is intriguing in itself. This means he is developing a new device different from smartphones and glasses. If it catches on, Meta and Google will quickly pick up on the idea - and that, we think, could push Apple out of the lead,» Martin writes.

The Needham analyst considers Google, the largest player on the market thanks to the Android operating system, to be Apple's most dangerous competitor. Additional pressure is created by the fact that Google has been investing in the development of generative AI for more than 25 years, building powerful technological bases. Apple is still lagging behind in implementing AI in its devices and faces a number of threats to its key revenue streams - iPhones and services. Demand for iPhones is declining amid uncertain U.S. trade policies, while regulatory pressure is mounting. The company could also lose the $20 billion a year it receives from Google for installing its default search engine in its Safari browser, Needham fears.

In trading on June 4, Apple's securitieswere appreciating by less than 1%. Since the beginning of the year, the company's market value is down more than 18%. By comparison, the main U.S. stock index S&P 500 over the same period added about 2%. Among all the members of the «Magnificent Seven» - Apple, Microsoft, Amazon, Alphabet (owner of Google), Meta, Nvidia and Tesla - Apple's shares have slipped the most this year.

Wall Street analysts are divided into two camps regarding Apple's prospects against the backdrop of rapidly developing AI, growing competition from Chinese smartphone makers and a more complex regulatory environment. Thus, optimists continue to emphasize the stability and reliability of the company. For example, Bank of America analyst Vamsi Mohana noted in a posted Yahoo Finance article that Apple's stock is perceived as a protective investment - the company, even in tough times, is at least meeting forecasts, and more often, slightly exceeding them.

On Tuesday and Wednesday, three other investment banks confirmed their optimistic views on Apple's stock: JP Morgan, TD Cowen and Evercore ISI. The JP Morgan analyst maintained a «buy» advice for investors and a target price of $240 - it is 18% higher than the last close. Analyst TD Cowen also advises to buy the company's securities and expects them to rise 35%, follows his $275 target. He believes that Apple could rise to this level if it manages to effectively implement AI in smartphones: to establish interaction with developers, use more powerful models and increase investment in cloud solutions. But if not, the stock could collapse to $160 apiece, the investment bank warned.

Wall Street skeptics, who are still a minority, point to the maturity of Apple's business as a downside: they believe the company has reached its growth peak and is now taking only small steps forward, notes Yahoo Finance. Pessimists also say Apple's service business has slowed compared to past years, undermining one of the key pillars of the company's expansion strategy. Counting on it to continue squeezing even more revenue out of subscriptions is unrealistic given the scale of that business already achieved, writes Yahoo Finance.

The majority of analysts - 32 out of 50 - still advise investors to buy Apple shares. Another 14 are neutral and only four recommend selling them. The Wall Street consensus price target is $228 - up 12% from the last close of trading on June 3.