Needham downgrades Apple stock regarding AI competition and limited iPhone upgrade cycle
Apple (AAPL) stock was downgraded to Hold from Buy by Needham analysts identifying the Apple stock as overvalued during increased AI competition.
Apple Intelligence, introduced with the iPhone 16, focuses on on-device AI processing for privacy and performance, integrating features with enhanced Siri.
Apple’s on-device approach requires significant RAM (8GB minimum), which limits compatibility to newer models such as the iPhone 15 Pro and 16 series. The on-device AI demand excludes older iPhone users from accessing these features.
Competitors using Cloud-Based AI, such as Google’s Gemini and OpenAI’s ChatGPT, run on cloud systems, enabling compatibility with older devices (as low as 2GB RAM). Apple may up their game here with new partnerships. Apple is rumored to begin collaboration with Google to integrate Gemini AI, and with Alibaba to navigate China’s regulations.
Global Market Trends in 2024 show a drop in market share for Apple, dropping to 18% from 23% in 2023.
Samsung held 34% market. Chinese brands like Xiaomi and Huawei are gaining market share, particularly in China, where Apple dropped from third to sixth in smart phone rankings.
Hardware Integration
Apple’s A-series chips with machine learning accelerators enable on-device AI, which offers privacy and low latency (minimal delay or lag). Competitors like Google (Tensor G3) and Huawei (domestically made chips) optimize AI across broader device ranges, including budget models.
Tech Ecosystem
Apple’s and effective and highly favored closed ecosystem that integrates AI across iPhones, iPads, and Macs; but Samsung and Google offer open Android ecosystems with broader app compatibility and AI tools. However, consumers may prefer established brand loyalty and non-AI features.
Emerging Threats and Innovations
AI-First Devices: OpenAI’s potential collaboration with Jony Ive to create undisclosed AI-specific hardware could challenge Apple by offering dedicated AI devices that would supposedly wean people off of screens. A Mashable article compares this device to the fictitious device that uses Scarlett Johansson's voice (or a voice that sounds like hers) in AI companion device in the movie Her(2013).
Jony Ive has a history of obsession with thinness of devices, and may not have been the best in integrating human factors and ergonomics in Apple's product lineup.
Quotes on Reddit Apple’s Product Design Has Improved Since Jony Ive Left : r/apple ...
"Jony Ive’s designs, without a Steve Jobs to keep him on a tight leash, became increasingly self-indulgent and disconnected from users’ needs."
"The “thin” characteristic is really what choked the new machines. Performance throttling issues, butterfly keys, soldered components…. All to fit into a thin chassis."
"Is he the genius who thought that having the charge port under a mouse was a good idea?"
"Jony Ive's designs belong in a museum. They will be admired for generations to come. The problem is he always chose form over function, to the point that everything that didn’t fit in his ultra-minimalist designs had to be removed. Unfortunately, removing features is antithetical to the nature of tech products where we generally want more, not less, features."
Regulatory Challenges
Apple faces regulatory hurdles in China, while Chinese companies have an easier time passing regulatory requirements.
Laura Martin, appearing on CNBC Wednesday, June 4, 2025, discussed the possibility of Apple selling less expensive iPhones by allowing ads to appear on the home screens of iPhones. She has been the senior entertainment and internet analyst at Needham & Company, where she publishes research on the largest internet and media stocks in the US.
Needham & Company, LLC is an independent investment bank and asset management firm specializing in advisory services and financings for growth companies. Needham & Company is a wholly owned subsidiary of The Needham Group, which also operates a private equity investment business and an investment management business.
Laura Martin's husband, Dan Medina, also works at Needham & Company, LLC, where he publishes research on the world's largest internet and entertainment companies.
Needham & Company and DDB Needham share no known corporate or operational connection.
See also ...
Leak reveals what Sam Altman and Jony Ive are cooking up: 100 million AI 'companion' devices | Mashable
Scarlett Johansson-OpenAI spat is a crisis for the AI industry | Mashable