Apple's stock could underperform, especially without an 'all-glass' iPhone, this analyst warns

By William Gavin

A Jefferies analyst says that it may be harder than it looks for Apple to roll out dramatically more expensive devices in a bid to boost profitability

Apple's stock is up 34% over the past year, but Jefferies analysts warn that further gains could be harder to come by.

A fancy new iPhone meant to celebrate 20 years of Apple's domination of the smartphone market has been canceled, according to Jefferies analysts - and that may be reason to take a more cautious view of the company's stock.

Apple (AAPL) was reportedly planning to make an all-glass iPhone that would represent a step toward former chief design officer Jony Ive's vision for a smartphone that would appear like a single sheet of glass, the Jefferies analysts noted on Monday. They said the device was intended to come out in September 2027 and cost $2,060 on average, much more than the iPhone 17 Pro Max, which starts with a $1,199 price tag.

However, Jefferies said the supply-chain work indicates the model has been canceled due to "poor production yield," a reference to the amount of usable product that the company gets through the manufacturing process.

This could be a "major setback" for Apple's plans to boost profitability through higher-priced smartphone offerings, the analysts said. They cut their rating on the stock to underperform in their latest note.

"We believe the plan was to extend the all-glass features to future iPhone Pro and Pro Max models, further raising their [average selling price] and margin," said Jefferies analysts led by Edison Lee. "We believe this shows that introducing new form factors in the iPhone to drive higher ASP is more difficult than expected."

A representative for Apple did not immediately respond to a request for comment.

The only remaining driver of higher prices and margin will be the rumored foldable iPhone, according to Lee. Investors have been excited by the prospect that this phone finally gets unveiled in the fall. Some analysts have predicted it would see strong initial demand from consumers and be a "meaningful" driver of growth for Apple.

But a foldable iPhone would likely be a "niche" product, according to Lee, who said high memory-chip prices could drive the price of the "18 Fold" to between $2,199 and $3,099, depending on storage capacity.

In June, Apple raised prices on its MacBooks and iPads after CEO Tim Cook called such increases "unavoidable." And the company's recent earnings reflected the impact of memory cost pressures on its gross margin, a measure of profitability.

Morgan Stanley's Erik Woodring said in a recent note to clients that average dynamic random-access memory costs for Apple will rise some 370% between fiscal 2025 and 2027. He said a $200 price hike across Apple's upcoming iPhone 18 lineup is increasingly likely.

Apple's stock slipped 1.5% on Monday, though it's up 34% over the past 12 months. Lee's price target of $263.66 implies room for the stock to fall about 16% from current levels.

-William Gavin

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

08-10-26 1849ET