Analyst Explains Threats to Apple (AAPL), Says It 'Fumbled' AI Launch

We recently published a list of 10 Stocks on Analysts’ Radar Amid Tariff Turbulence. In this article, we are going to take a look at where Apple Inc. (NASDAQ:AAPL) stands against other stocks on analysts’ radar amid tariff turbulence.

Dan Niles, Niles Investment Management founder, predicted in a CNBC program earlier this month that unlike previous market crashes, the latest market volatility of 2025 could see a quick resolution because it was “self-inflicted.”

“Unlike prior drawdowns that you’ve seen, like the global financial crisis, you’re not going to fix the problem in a day because you’ve accumulated tons of bad mortgages. You’re not going to fix COVID because it’s a global pandemic in a day. You’re not going to fix the tech bubble meltdown because you overinvested for 5 years back in the late 1990s. This you can literally fix overnight if everybody, you know, resettles the tariffs because this is a self-inflicted wound.”

However, this does not mean Niles is bullish on the market in the long term. He still has valuation concerns and reiterated that he entered the year with cash as his biggest holding. Niles said his top five picks do not include any of the Mag. 7 companies, and he would remain cautious on valuations:

Asked about his preferences in the current market environment, the analyst warned investors to steer clear of high valuations and big promises that lie far into the future:

“I would focus on is which companies are generating a lot of cash, which ones tend to pick up market share during recessions. Those are the types of names that you want to be in because if you’re in stuff where, well, you know 10 years from now it’s going to be a big market, you’re going to get absolutely murdered if you get into a recession,” Niles said.

READ ALSO 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In

For this article, we picked 10 stocks Wall Street analysts have been focusing on. With each stock, we have mentioned its hedge fund sentiment. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

Apple Inc (NASDAQ:AAPL)

Number of Hedge Fund Investors: 166

OptionsPlay‬’s Tony Zhang in a latest program on Schwab Network explained the challenges Apple Inc (NASDAQ:AAPL) is facing. The analyst believes Apple has failed to see the expected growth from AI:

“We’re currently in an environment where Apple simply just continues to face multiple headwinds right now. I mean, we really have to start off with the fact that, you know, iPhone 16 sales overall have been somewhat underwhelming. Every single data point that we seem to get every single month with regards to iPhone 16 sales continue to kind of show a slowdown in terms of the upgrade cycle for the iPhone, which is meant to be the primary driver of revenue for Apple. And, you know, more importantly, I think the fact that Apple has essentially staked their entire future in augmented reality at the moment, they’re not a leader in that particular space in either the software or the hardware side of things. So, I think from that perspective, you know, we’re really talking about current concerns around the product cycle that is concerning, and then the future that looks quite uncertain. And then you put into the fact that they’ve really fumbled the launch of augmented reality or, or I’m sorry, of AI for Apple. You know, this was meant to be the primary driver of the next upgrade cycle for the iPhone 16. And now it’s looking like it’s not even going to potentially be a driver of sales for the iPhone 17. So, you know, when you’re in an environment where there’s clearly a slowdown in consumer demand, you look at the macro environment where consumer sentiment is at multi-year lows, and we’re seeing a meaningful slowdown in actual consumer spending.”

Apple’s last quarterly results were helped by Services revenue in the latest quarter, but the key challenges haunting the company remain as they were. Many analysts believe that just a few AI apps would not be enough to trigger a broader upgrade cycle for iPhone. Apple is dealing with currency headwinds as the stronger US dollar is expected to reduce top-line growth by 2.5% next quarter. For Q2 FY2025, management expects overall revenue to grow in the low to mid-single digits. Apple’s stock is trading at a premium valuation, with a price-to-earnings ratio of 39-40x, a price-to-free-cash-flow ratio of 33-34x, and a PEG ratio exceeding 3x. Upcoming quarters would be difficult for Apple and its current valuation is not justified.

Columbia Seligman Global Technology Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q4 2024 investor letter:

“The fund maintained a position in Apple Inc. (NASDAQ:AAPL) throughout the quarter through the release of the company’s new iPhone 16 in September. Company leaders were excited about the release of the new model, as this is the first model that will feature enhanced AI capabilities through the Apple Intelligence features. Sales for the first few weeks in October and November trailed behind year over year sales from the iPhone 15, as availability of Apple Intelligence was not compatible with all iPhone models. Apple announced a partnership with OpenAI that has allowed the integration of ChatGPT into the Apple ecosystem, separate from the core Apple Intelligence features. This partnership highlights continued progress from Apple to introduce AI capabilities into its products and we expect the iPhone 17 to have even more expansive AI capabilities, increasing potential demand for the new model that is on track to be released in 2025.”

Overall, AAPL ranks 5th on our list of stocks on analysts’ radar amid tariff turbulence. While we acknowledge the potential of AAPL, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AAPL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.

Disclosure: None. This article is originally published at Insider Monkey.