Jefferies Analysts Caution on iPhone 16 Expectations

Jefferies analysts have downgraded expectations for the upcoming iPhone 16, indicating that supply chain checks suggest only moderate to minimal year-over-year growth.

In a report issued to clients on Monday, the firm noted that previous predictions of double-digit growth for the iPhone 16 appear overly optimistic. This could create short-term pressure on stock prices of companies within Apple’s (NASDAQ:AAPL) supply chain.

“While all eyes are on iPhone 16, channel checks show limited growth so high forecasts need to fall,” Jefferies stated.

The analysts acknowledged that demand for high-end smartphones remains robust, but highlighted increasing growth challenges as the market stabilizes following a recovery period.

Jefferies attributed the expected growth slowdown to several factors, such as rising costs for components related to artificial intelligence (AI) and diminishing upgrades for traditional smartphone features, including display and camera technology.

“The emergence of AI potential for smartphones has likely accelerated the end of this honeymoon period for the supply chain, as BOM costs related to AI, such as SoC, fast memory solutions, and advanced packaging, would need to rise, putting pressure on margins and the previous specifications upgrade roadmap,” they commented.

The report indicated that “real AI capabilities are likely two years away,” suggesting limited hardware innovations in the upcoming iPhone 16.

Despite strong demand for high-end devices and potential market share increases in emerging markets, Jefferies projects that iPhone 16 sales will be “positive but slow.” They believe that inflated growth expectations could prompt a reevaluation of existing projections.

“We believe that iPhone 16 will sell well given healthy high-end demand and share gain potential in emerging markets. However, hardware innovations for the 16 are still limited, and its AI features are primarily in their early stages, mainly in the US. Therefore, discussions surrounding double-digit growth are probably too aggressive,” Jefferies concluded.