Apple downgraded to underweight at KeyBanc with $250 target

KeyBanc downgraded Apple Inc. to underweight from sector weight, warning the stock's 35-times forward earnings look too expensive.

"We see slowing iPhone builds with price increases, weak U.S. upgrades, and changing device subsidy models," Brandon Nispel, analyst at KeyBanc, said in a note to clients Monday.

Nispel set a $250 price target, implying 21% downside from Monday's close of $323.45. Apple shares have gained 17% year to date, outperforming the S&P 500's 11% advance as investors sought AI-related exposure. The stock hit an all-time high of $323.45 on Monday. Apple trades at 35 times forward earnings, well above the S&P 500's 20.7 multiple, FactSet data show.

The downgrade puts Nispel among just two of 48 analysts covering Apple with an underperform rating, LSEG data show. Rising iPhone prices may push U.S. carriers to reduce device subsidies, lowering upgrade rates and extending replacement cycles, the analyst said.

KeyBanc also expects slower growth in Apple's services business. The bank estimates services revenue will decelerate to 7% growth by the end of 2027, below the Street consensus of 12%, according to the note.

Nispel said expectations for 2027 likely need to move lower for Mac, iPad, and Wearables segments. As unit growth slows, so will the expansion of Apple's user base, pressuring the services vertical, he added.

All three major U.S. carriers — Verizon, AT&T, and T-Mobile — have publicly discussed transitioning away from device subsidies, according to KeyBanc. As device costs increase, carriers will likely pull back on subsidies, which could support longer average holding periods for devices.

The cautious call comes as mega-cap tech stocks face increased scrutiny over stretched valuations. Apple's 35-times multiple is among the highest in the so-called Magnificent Seven group, excluding Nvidia Corp., FactSet data show.

The downgrade shows valuation concerns are emerging even as Apple rides AI enthusiasm to record highs. Investors will watch Apple's fiscal fourth-quarter earnings in October for signs of iPhone demand trends and services momentum.

This article is for informational purposes only and does not constitute investment advice.