Jefferies downgraded Apple to underperform, cutting its price target to $263 from about $285. That is roughly $50 below where the stock opened, so this was a heavy cut, not a light one. Apple fell about 2.5% on the day and sits down about 11% from its all-time high.
The main reason for the cut came from supply chain checks. Those checks suggest Apple has canceled the all-glass iPhone that was planned for September 2027, the 20th-anniversary model. That phone would have let Apple charge more. Losing it removes one path to higher prices. There are also rumors the new iPhone 19 will carry 4 gigabytes more memory, which Jefferies figures could add $60 to $70 to the build cost.
The Bear Case: Valuation and Rising Costs
The bigger worry before earnings was the price. Apple traded at a 41 PE, far above the market's usual 20 or so. That is why some of us stayed away from the stock at the time. After the pullback, the PE has dropped a lot, so that specific concern has eased.
Rising component costs are the fresh problem. CEO Tim Cook called memory chip prices a "100-year flood." Prices for parts are climbing on a supply-demand gap. Apple already raised prices on iPads and Macs because of chip costs and supply chains. Last year it held iPhone prices flat, but now it will likely have to raise them, and other components may rise too. Higher iPhone prices could push consumers to delay upgrades. The new iPhone 18 lineup is due in September, the usual launch window, and the fear is that costlier phones dent demand and stretch out the upgrade cycle. Apple did sign a recent deal with Klarna to lease phones, which gives buyers a lower entry price than buying a new model outright.
The Bull Case: Growth Holds Up
Apple's business is still strong. It has 2.5 billion active devices. Services keep growing fast at high margins, around 75%. Device margins are still solid at about 40%. Overall revenue grew 16% last quarter, and iPhone revenue was up 22% year over year. Apple has also stayed out of the heavy, risky AI capital spending that other firms are pouring money into, yet it stands to benefit because most people will end up using AI on a phone.
Focusing the downgrade on the 2027 all-glass model looks like the wrong target. That phone would have carried a high price, but the volume sold would have been small, so it is an odd thing to build a bear case around. Gene Munster of Deepwater made the same point, arguing Jefferies erred by fixing on the supply chain while ignoring Apple's AI potential and room for price increases. He doubled down on his bullish view. The valuation got rich as the stock hit new highs, but earnings supported it.
Example Trades
Bearish trade (put calendar spread). This fits if you think the downgrade is right. The expected move over two weeks, out to August 24th, is about $11, so the trade targets a strike in that range. Buy the August 28th 297.5 put, sell this week's August 14th 297.5 put, for a debit of about $2.25. It pays out best at the end of this week right at $297.50. The strike is only about $7.50 to $8 out of the money, so it is moderately bearish. Profit runs roughly from 306 on the top down to about 290. Below 290 or above the range, you lose. The $225 debit is the total risk. It is a long Vega trade, so if the stock drops and implied volatility rises, the calendar's value grows. As expiration nears over the next four days, you can roll the short leg to the August 21st cycle, collect credits, and lower your risk. Apple is liquid, so rolling is easy. What you don't want: the stock reversing higher, or dumping back below $290.
Bullish trade (broken-wing call butterfly). More directional. Go out to the September 18th monthly option, 39 days to expiration, for more time. Buy one 300 strike call (in the money by over $5), sell two 320 strike calls, buy one 325 strike call. This one-by-two-by-one costs about a $7.90 debit, maybe $7.60 now that the stock has slipped. That $790 is the total risk. Peak profit sits at or near the 320 strike. Buying the long strike in the money by over $5 pulls the breakeven down to about $307.90, only about $2.50 above the current price. The tradeoff: buying in the money costs more and caps the overall profit lower than an at-the-money version would. Even if the stock runs above 325, the trade still roughly doubles the money risked.
The lesson running through both: every options trade carries tradeoffs. Buying in the money adds delta and lowers the breakeven, but it costs more upfront and trims the top-end profit.
