Analysts at KeyBanc Capital Markets downgraded Apple's (AAPL) stock amid concerns over the company's valuation and sales outlook.

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Shares of Apple slipped slightly in the Wednesday premarket after KeyBanc strategists cut the stock’s rating from Overweight to Sector Weight. The downgrade comes amid concerns over the company’s valuation and an expected slowdown in iPhone sales. 

KeyBanc Foresees Near-term Challenges for Apple Sales

Analysts at KeyBanc Capital Markets downgraded Apple stock on Wednesday, citing several concerns about the world’s most valuable company. The strategists reduced their rating on AAPL from Overweight to Sector Weight.

The first factor that contributed to KeyBanc’s cautionary note is valuation. According to the analysts, the company continues to trade close to record high multiples – at 26.3x next year’s earnings, compared to a historical average of 23.5. In addition, Apple is valued at a significant premium compared to the tech-oriented Nasdaq.

Secondly, KeyBanc sees challenges for the tech giant’s sales performance going forward, based on their analysis of over 1.8 million KeyBanc cardholders in the US. They found that upgrade rates in the US are low, and initial iPhone promotions carriers offer are not enticing.

Similarly, strategists noted that the global sales outlook doesn’t look much better, with market expectations for international expansion possibly being aggressive. Wall Street estimates for Apple’s top- and bottom-line also seem full, KeyBanc said. 

“In our view, user growth is still more important than unit growth, but we believe this could be a losing argument near-term given lack of catalyst, which we believe results in a neutral risk/reward.”

– the analysts led by Brandon Nispel wrote.

Shares of Apple were down 0.5% in the premarket trading.

Apple Up 38% YTD

KeyBanc’s words of caution come after a favorable year for Apple, which currently sits at a $2.7 trillion valuation following its 38% year-to-date surge. The stock exceeded a $3 trillion market cap earlier in the year but has seen a notable correction.

The company’s noteworthy ascent comes amid a broader rally for tech stocks, fueled by the ongoing hype around generative artificial intelligence (AI). But in contrast to its technology peers Microsoft, Alphabet, and Meta – which have been going all in on AI – Apple has largely stayed quiet about it. (MSFT, GOOGL, META)

However, it appears that Apple is doing that purposefully, as its interest in AI is very much alive. Since 2017, the tech behemoth has been the top buyer of AI and machine learning (ML) companies, according to PitchBook data. In addition, the company has reportedly been investing millions in developing AI models to challenge those offered by OpenAI and Alphabet.

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