Apple downgraded by DA Davidson, says ’defense is not enough’

Apple received its second downgrade on Thursday, with DA Davidson cutting its rating to Neutral from Buy, citing a lack of innovation in recent product announcements and AI strategy that is failing to drive a significant upgrade cycle. The firm highlighted concerns over the iPhone lineup's appeal, the staggered Apple Intelligence rollout, and increased competition, particularly in China. DA Davidson concluded that Apple's valuation at 28x CY26 earnings for 9% growth reflects a defensive play, suggesting stronger upside potential in Microsoft and Nvidia.

Analysis

Apple (AAPL) is facing mounting skepticism from analysts, evidenced by two recent downgrades. DA Davidson lowered its rating to Neutral from Buy, arguing that the company's recent product announcements and AI strategy are insufficient to catalyze a major upgrade cycle. The firm's analysis highlights that the iPhone 16 and 17 families appear uncompelling, and the staggered rollout of Apple Intelligence is viewed as a 'relative failure' that undermines near-term prospects. Compounding these issues is intensifying competition in China, where local alternatives are gaining ground due to Apple's perceived innovation lag. From a valuation perspective, DA Davidson contends that at 28 times calendar year 2026 earnings for a 9% growth rate, investors are primarily paying for a defensive position rather than for growth. This sentiment is echoed by Phillip Securities, which also cut its rating to Reduce, citing concerns over tariffs, high capital expenditure, and a lack of AI innovation. Both analyses implicitly suggest that capital may be better deployed in competitors like Microsoft and Nvidia, which are perceived to have stronger upside.

Key Decisions for Investors

• Given the dual downgrades citing a weak product cycle and lagging AI strategy, investors should scrutinize Apple's premium valuation of 28x CY26 earnings against its modest 9% growth projection.
• Monitor key performance indicators from the upcoming iPhone 16 launch and the full rollout of Apple Intelligence, as analysts view these as critical tests of the company's ability to drive a meaningful upgrade cycle and fend off competition.
• Consider the relative value proposition of Apple versus peers like Microsoft and Nvidia, which analysts suggest may offer stronger growth and upside potential in the current technology landscape.