Jefferies upgrades Apple to a hold, says June quarter has upside and could keep stock stable

Jefferies upgraded Apple (AAPL) to Hold from Underperform, raising its price target to $188, citing robust iPhone sales growth of 15% in April/May and 19% during a Chinese shopping holiday, which suggests strong market share defense in China and potential upside for Q3FY25 results. However, the bank maintains caution regarding potential September quarter slowdowns due to a lack of new features and non-game-changing AI, alongside concerns about the '17 Slim' model's attractiveness and long-term risks including App Store revenue and U.S. tariffs.

Analysis

Jefferies has upgraded Apple to a 'Hold' rating from 'Underperform' but maintains a cautious outlook, setting a price target of $188 which implies nearly 10% downside from recent trading levels. The upgrade is primarily driven by strong near-term iPhone sales data, with volumes growing 15% annually in April and May and 19% year-over-year during China's June 18 shopping festival. This performance, the fastest since Q3 2021, indicates Apple's strategy of using price adjustments to defend its market share in China is proving effective and could lead to an upside surprise in Q3FY25 earnings, potentially stabilizing the stock. However, these positive short-term catalysts are weighed against significant longer-term risks. Jefferies warns that the current sales strength might be a pull-forward of demand that could weaken the September quarter, especially given a perceived lack of innovative new features and an AI offering that is not yet considered a 'game changer.' Specific concerns were raised about the future iPhone 17 Slim's value proposition, while flagging potential downside to App Store revenue and noting that the market may be too optimistic regarding the impact of future U.S. tariffs on Apple's key manufacturing regions.

Key Decisions for Investors

• Given the potential for a strong June quarter to provide near-term stock stability, investors might reconsider aggressive short positions until the next earnings release provides more clarity on demand trends.
• Long-term investors should remain cautious, as the analysis highlights significant future headwinds including a potential demand slowdown post-June, questionable product innovation on the horizon, and geopolitical tariff risks.
• It is critical to monitor upcoming disclosures on the iPhone 17 product line, any developments in U.S. tariff policy affecting Apple's supply chain, and evidence that AI features are becoming a meaningful driver of consumer upgrades.