Apple stock upside could be limited from here on out, one analyst believes, so one analyst downgraded his rating on it, marking the second such downgrade for the iPhone maker already this month. He warned that even a strong iPhone 8 cycle won’t be enough to attract a significant number of new users to the Apple ecosystem. Meanwhile, another analyst weighed in on the debate over iPhone weakness in China and suggested that it is merely a sign of pent-up demand.

apple stock upside iphone 8 cycle iphone weakness in china
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The only question now is whether the pent-up demand in China will be enough to compensate for the lack of people switching to an iPhone from other brands.

Apple stock upside is limited for now

In a note dated June 11, Mizuho Securities analyst Abhey Lamba downgraded Apple from Buy to Neutral and cut his price target from $160 to $150 per share. He feels that Apple stock upside is now limited despite the potential for a very strong iPhone 8 cycle. He noted that the stock has “meaningfully outperformed” year to date, and he feels that the “enthusiasm” about the iPhone 8 cycle was already fully accounted for in the valuation.

As a result, he sees Apple stock upside as being limited from here, although the shares plunged another 3.56% to $143.68 on Monday after tumbling from about $155 on Friday to land in the $140 range. Apple is part of the hot new analyst acronym FAAMG (Facebook, Amazon, Apple, Microsoft, Google/Alphabet), and there’s an ongoing debate about whether tech stocks in general have much further upside in the near term.

Investors appear to see the tech rally as spent because other tech names have also tumbled over the last couple of trading days.

iPhone 8 cycle still expected to be strong

Lamba still expects the iPhone 8 cycle to be strong and probably drive a strong holiday season that stretches into early next year. However, he feels that investors have already fully anticipated this strength, and thus he thinks that Apple stock upside is limited. He also cautioned investors about consensus estimates for fiscal 2018 because of the potential for tough comparisons and also growth that’s being driven mainly by replacements rather than by new customers, which he explains caps the expansion of the installed base.

The Mizuho analyst addressed the debate of iPhone weakness in China as well and said he continues to expect China to remain weak in the near term. He feels that Apple is moving in the right direction in India but adds that affordability is still constrained, which limits near-term contributions from the country.

Debating iPhone weakness in China

Bernstein analyst Toni Sacconaghi, Jr. addressed the issue of iPhone weakness in China in his own note dated June 12. He noted that there are two ways to look at it, with the more concerning option being that the weakness is the result of a structural share loss to domestic competitors. However, he feels that the iPhone weakness in China is actually caused by consumers pausing their iPhone purchases in anticipation of the iPhone 8 cycle.

He pointed out that China made up 22% of Apple’s revenue and 25% of its operating profits in fiscal 2016, making it Apple’s second biggest geographical region after the Americas. The problem has been the company’s tumbling sales in China as revenue there ticked lower in each of the last five quarters. He feels that Chinese consumers look to be more sensitive to changes in form factor and features than consumers in the rest of the world. He also adds that Apple’s share of the high-end smartphone market there is similar to where it has been historically, except for in the iPhone 6 and 6s cycles.

Unlike Lamba, Sacconaghi predicts that the iPhone weakness in China is about to go out with a bang and that Apple “is likely to see a surge of potential upgrades” in the next four to eight quarters. He’s modeling the iPhone upgrade rate in China to rise from 27% to 34% over the next four quarters even without any “push out in iPhones” and based on “the natural timing of replacements.”

The Bernstein analyst seems unconcerned about Apple’s growth being driven primarily by upgraders rather than new customers.