Raymond James Downgrades Apple, Cites Rich Valuation
Raymond James cut Apple to Market Perform from Outperform, saying the stock's 31x forward multiple leaves little room for upside despite strong fundamentals.
Apple just got its first downgrade of 2026, and the reasoning has nothing to do with iPhones.
Raymond James analyst Melissa Fairbanks resumed coverage of Apple on Friday with a Market Perform rating, down from her prior Outperform. The firm didn't assign a price target. Her concern: Apple trades at 31 times fiscal 2027 earnings estimates, a valuation that already reflects the company's strengths.
"Despite strong fundamentals and improving product cycles, we believe Apple's current valuation appropriately reflects these strengths, limiting near-term upside," Fairbanks wrote.
The downgrade arrives as Apple shares have lagged the broader market. The stock gained 11% over the past 12 months compared to the S&P 500's 17% advance—a notable underperformance for a company that typically trades as a market leader.
The Valuation Problem
Apple ended 2025 at $271.86, putting its market cap near $4.06 trillion. At 31 times forward earnings, it's priced more like a growth stock than a mature consumer electronics company.
The multiple made sense when iPhone growth was robust and Services revenue was accelerating. But both narratives face challenges.
Raymond James expects iPhone unit growth of roughly 3% in both fiscal 2026 and 2027—hardly the expansion rate that justifies a premium multiple. The installed base of 2.4 billion active devices provides stability but limits incremental growth. Where do you find another billion customers?
Services remains the bright spot. The segment—which includes the App Store, Apple Music, iCloud, and licensing deals—generates recurring revenue at high margins. Fairbanks expects it to remain the primary growth driver. But Services alone can't accelerate consolidated growth enough to justify the current multiple.
No Catalyst in Sight
The downgrade reflects a lack of near-term upside triggers.
Apple Intelligence, the company's AI initiative, has been slower to roll out than expected. Features that were supposed to drive upgrade cycles haven't materialized in the data. Siri improvements remain incremental rather than transformational.
The Vision Pro hasn't moved the needle. The $3,500 headset impressed reviewers but hasn't achieved meaningful sales volumes. A lower-priced version is expected, but spatial computing remains years away from mass adoption.
What's left? The iPhone 16 cycle is performing adequately, not spectacularly. Mac and iPad have stabilized after pandemic-era declines. Wearables growth has slowed. None of this is bad, but none of it justifies paying 31 times earnings.
Competition from Big Tech
Apple's valuation stands out among mega-cap tech.
Microsoft trades at 28 times forward earnings with faster growth expectations. Alphabet is at 19 times. Meta at 24 times. Amazon at 32 times—but Amazon has AWS and advertising growth that Apple lacks.
The comparison matters because investors have choices. If Apple offers slower growth at a similar or higher multiple, capital flows elsewhere. That's what happened in 2025, when Apple underperformed while Nvidia and Meta surged.
The chip stock rally kicking off 2026 underscores the point: investors are paying up for AI exposure. Apple's AI story is less compelling than Nvidia's, Microsoft's, or even Meta's. Until that changes, the stock may continue to lag.
Bulls Will Disagree
Apple bulls have heard the valuation argument before. It hasn't stopped the stock from compounding over the long term.
Their counterpoints: Services growth is durable and underappreciated. The installed base provides a moat no competitor can replicate. The balance sheet allows massive buybacks that reduce share count and support EPS growth even when revenue growth is modest.
And Apple has surprised before. The iPhone was a phone company story until it wasn't. The Apple Watch was a flop narrative until it became the dominant wearable. Dismissing Apple's ability to execute has historically been a mistake.
The January 29 earnings report will provide the next test. If management guides above expectations or signals an inflection in AI-driven upgrades, the downgrade could age poorly. If results merely meet forecasts, Fairbanks's thesis holds.
Tim Cook's Side Bet
Interestingly, Apple's CEO recently made a notable personal investment.
Tim Cook purchased $3 million in Nike stock last month, a bet on the struggling athletic apparel company's turnaround. The move signals confidence in consumer discretionary recovery—or perhaps just personal conviction in Nike's brand.
It's unrelated to Apple's prospects, but it illustrates that Cook sees value outside his own stock. Whether Apple shareholders should read into that is another question.
Trading Implications
The downgrade doesn't change Apple's fundamentals. It's a valuation call, not a quality call. The company remains one of the best-run businesses on the planet.
But valuation matters for forward returns. At 31 times earnings, Apple needs multiple expansion or accelerating growth to outperform. Neither seems imminent.
For traders, the stock may consolidate until earnings provide a catalyst. For long-term investors, the question is whether to pay up for quality or look elsewhere for value. Raymond James is suggesting the latter.
Apple has earned its premium over time. But premiums can stay stagnant—or compress—when the growth story fades. The market will decide whether Fairbanks is right.