Craig Moffett, co-founder and senior analyst at MoffettNathanson Research, appeared on CNBC’s ‘The Exchange’ to discuss his firm’s recent downgrade of Apple Inc (AAPL). from a ‘neutral’ to a ‘sell’ rating, setting a price target of $188, which suggests a 22% downside from the current trading price of $241.70. Moffett clarified that this downgrade is not a reflection on Apple’s quality as a company but rather on its current valuation and market risks.
Moffett highlighted that this was the first time he had issued a ‘sell’ rating on Apple, emphasizing that the decision was based on the stock’s valuation being excessively high at 33 times earnings. He pointed out that Apple, unlike its peers in the “Mag7” group such as Amazon (AMZN), Meta (META), or Alphabet (GOOGL, GOOG), no longer exhibits brisk growth. This discrepancy results in a PEG ratio (Price/Earnings to Growth) for Apple that’s significantly higher than its peers, around 3 compared to about 2, indicating that Apple’s stock is overpriced relative to its expected growth.
He noted that Apple’s valuation has been particularly concerning when viewed against the backdrop of its performance in 2024. Early in the year, the narrative was that Apple was lagging in AI, which negatively affected its stock during the initial AI boom. However, as the market anticipated Apple’s AI strategy, especially leading up to the worldwide developer conference in June, there was a significant rally in the stock price due to expectations of Apple’s strategic advantages in agentic AI—applications that could leverage personal data like calendars, contacts, and emails for enhanced functionality. Despite these positive developments, Moffett argued that by the time MoffettNathanson initiated coverage, the stock seemed fairly valued, considering these new strategies had already been factored into its price.
Towards the end of 2024, however, Apple’s stock began to rally again, seemingly without corresponding positive news. Moffett pointed out that contrary to appearances, there was substantial negative news that should have made investors more cautious, particularly concerning Apple’s position in China and the lack of the anticipated AI-driven upgrade cycle. These factors, combined with a valuation that does not account for these risks, led Moffett to recommend a sell rating on Apple’s stock, suggesting that investors should approach with caution given the current market conditions and Apple’s stretched valuation.
