While Apple (AAPL) stock gained an impressive 49% in 2023, which was better than the 44% returns delivered by the Nasdaq Composite ($NASX), it was actually the worst-performing FAANG constituent of the year. Unfortunately, 2024 hasn’t started on a positive note for the iPhone maker, either, and three brokerages have downgraded the stock within the first two weeks of the year. 

It is quite a rarity for analysts to downgrade Apple, which has proven to be a very resilient business as compared to many other tech companies. Here’s the 2024 prediction for Apple stock, and a closer look at why analysts are getting bearish on the company.

Why Did Apple Stock Underperform FAANG in 2023?

In fiscal year 2023, Apple reported negative revenue growth in all four quarters. It was the first time since 2001 that the company’s revenues fell YoY for four straight quarters. 

Apple’s commentary on the revenue outlook for the December quarter failed to instill confidence, either, as it forecasted revenues “similar” to the corresponding quarter last year. In contrast, the company's FAANG peers mostly impressed markets with both their top-line and bottom-line results last year, and markets rewarded them commensurately after the 2022 crash.

Apple Stock 2024 Prediction

Of the 28 analysts covering Apple stock, 15 rate it as a “Strong Buy,” while 3 call it a “Moderate Buy.” Nine more analysts rate it as a “Hold,” while 1 says it's a “Strong Sell.”

In terms of consolidated ratings, Apple is the second worst-rated FAANG stock, behind only Netflix (NFLX). But while Netflix is trading above its mean target price from analysts, Apple's mean target price of $205.15 represents a premium of more than 10% to its current stock price.

That said, analysts are getting more bearish on Apple. Redburn, Piper Sandler, and Barclays have all downgraded the stock over the last two weeks. While Redburn and Piper Sandler now rate the stock as a “Hold” or equivalent, Barclays downgraded the stock to a “Sell” equivalent with a Street-low target price of $160.

Why Are Analysts Turning Bearish on AAPL?

Some brokerages are getting bearish on Apple amid fears of an extended slowdown in iPhone sales. Analysts are especially worried about the outlook for iPhone sales in China, which is the company’s third-biggest market behind the U.S. and Europe, and accounted for around 19% of its fiscal year 2023 revenues.

Apple is facing tough competition from domestic Chinese smartphone companies like Huawei and Xiaomi. Incidentally, Huawei – whose operations suffered a near-death blow after restrictions by the U.S. – has bounced back and grabbed market share from Apple with its competitively priced models. In a sign of soft demand, Apple is offering limited-time discounts on iPhone 15 in China, including on the iPhone 15 Pro Max. 

Notably, Apple's FAANG peers also grappled with multiple challenges in 2023, but have largely countered the headwinds. For instance, Netflix was able to address concerns over slowing growth by coming up with an ad-supported tier and cracking down on password sharing – which helped it add a whopping 8.76 million net subscribers in Q3 2023.

Likewise, Meta Platforms’ (META) aggressive cost cuts under the “year of efficiency” helped propel its earnings last year, and the shares almost tripled to deliver their best year ever. Amazon’s (AMZN) focus on cost cuts also impressed markets, and the company’s operating margins soared to 7.8% in Q3, which is not too far below the record 8.2% margins hit in Q1 2021.

While Alphabet (GOOG) continues to face headwinds from rising competition, especially from ChatGPT-powered Bing, the company worked to offset those pressures through cost cuts and layoffs, and was also aided by the recovery in the digital ad market last year.

As for Apple, none of the steps that it took last year were as “pathbreaking” as its other FAANG peers.

Should You Buy Apple Stock?

For instance, while the company is betting on the Indian market, the country might not fill in the gap left by slowing sales in China anytime soon. AAPL is also coming up with soon-to-be-delivered augmented reality headsets, but the market there is not big enough to make up for the slowdown in iPhone sales. The U.S. also imposed a ban on import of some Apple Watches in December amid a patent dispute, and Apple continues to face regulatory heat over antitrust concerns.

I believe the biggest risk for Apple is its elevated valuations - it trades at over 28x its next 12 months' earnings. The valuation multiples are higher than what we saw before the COVID-19 pandemic. While those multiples were justified by the turbo-charged growth that the company saw in 2021, currently, the company looks short of big growth drivers.

Overall, while I believe that Apple is among the “hold for life” companies, I would not add any new shares at these price levels, as the short-term risk-reward does not look favorable.