Apple Inc. (ticker: AAPL) led big-name tech stocks lower Monday after a downgrade by Mizuho Securities rattled investor confidence in the upcoming iPhone 8 cycle. Mega-cap technology stocks finished last week on a low note, and Apple continued the negative momentum on Monday after Mizuho analyst Abhey Lamba downgraded Apple from “buy” to “neutral” and wrote that Apple’s stock has already priced in an exceptionally strong performance from the iPhone 8.
“The stock has meaningfully outperformed on a [year-to-date] basis, and we believe enthusiasm around the upcoming product cycle is fully captured at current levels, with limited upside to estimates from here on out,” Lamba says in the report.
Even in the best-case scenario for the iPhone 8, Mizuho projects only about $11 per share of earnings for Apple in fiscal 2018. That number is roughly 50 cents per share more than the consensus Wall Street forecast for Apple, leaving very little upside for the stock, Lamba says.
With Apple shares already up about 25 percent so far in 2017, the valuation of AAPL stockis already at the high end of its historical valuation range.
“Further gains on the stock could be limited until there is more meaningful expansion in the installed base, higher recurring revenue growth from existing users or deeper penetration of the installed base via new product categories,” Lamba says.
Even high-growth markets such as China and India may not provide the type of growth that Apple investors are looking for. Lamba says China will likely continue to be weak for Apple, and the iPhone’s high price could limit near-term penetration in India as well.
In addition, Wall Street’s expectation for 30 percent growth in Apple’s services revenue per user in the next two years has set the bar extremely high.
On Friday, Apple stock dipped…
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