Jefferies Downgrades Apple to Underperform: Why the Bull Case Is Falling Apart

The all-glass iPhone was not just another model. Jefferies estimated it would carry an average selling price (ASP) of roughly $2,060 and was central to Apple's strategy of pushing ASP and margins higher across the entire Pro and Pro Max line . Apple's plan was reportedly to "expand all-glass features to future iPhone Pro and Pro Max models, further increasing ASP and profit margins" . With that roadmap gone, Jefferies has cut its iPhone ASP compound annual growth rate (CAGR) forecast for 2026-2031 from 9.0% to 6.8% .

EPS Estimates Were Already Under Pressure

Jefferies had already downgraded its operating profit and EPS forecasts by roughly 7% in late July 2026, bringing them 6% below the consensus at the time — before the all-glass iPhone cancellation was confirmed . The cancellation now creates a structural EPS headwind that Jefferies believes the broader market has not yet incorporated . The broker revised its FY2028 and FY2029 EPS estimates downward by 2.1% and 3.4%, respectively .

The Memory Cost Crisis: A '100-Year Flood'

Perhaps the most immediate threat to Apple's margins comes from the memory chip market. Jefferies' own research forecasts memory prices will surge 40-50% in Q3 2026 and another 30-40% in Q4, with no meaningful relief expected before 2028 . The upward pressure is projected to continue with year-on-year increases of 40-45% in 2027, followed by only limited price reductions of 15-20% in 2028 .

Apple has already felt the sting. In June 2026, the company raised iPad and MacBook prices, with CEO Tim Cook publicly describing the situation as a "100-year flood" in memory costs . Prices of DRAM — used in virtually all modern tech gadgets — rose as much as 98% in Q1 2026 alone, according to industry tracker TrendForce .

These cost increases directly pressure Apple's gross margins. Analysts at GF Securities, who also downgraded Apple to Hold in early August, warned that the iPhone 18 Pro may need price hikes of $200 to $300 just to absorb the component inflation . Jefferies itself had noted just before the downgrade that "the iPhone 17's gross margin could fall by four points in the third fiscal quarter and by nine points in the second half of calendar 2026 absent price increases" .

Apple Intelligence: Hype Without a Replacement Cycle

Jefferies has repeatedly flagged that Apple Intelligence features have failed to drive a replacement cycle or meaningfully boost iPhone demand . The pace of AI service monetization remains uncertain. This skepticism is now shared across the Street: China Renaissance, DZ Bank, and Phillip Securities all downgraded Apple in early August 2026, citing the slow return on AI investment .

Wall Street Is Turning — Quickly

The downgrade from Jefferies is part of a broader shift in analyst sentiment. UBS highlighted that Apple's Q3 gross margin improvement was largely due to a one-off tariff refund, with underlying margins pressured by supply constraints and memory inflation . While tariff exposure dominated Jefferies' concerns in 2025, the structural cost burden from memory chip inflation has now replaced trade policy as the primary margin threat .

With the premium-iPhone roadmap stalled, component costs surging, and AI failing to move the needle on demand, Jefferies sees a stock that has priced in a version of the future that may not arrive.

What This Means for Investors

The Jefferies downgrade is notable not just for its bearishness, but for the breadth of evidence behind it. The confluence of a canceled flagship product, a memory cost cycle that Apple itself calls historic, and tepid AI monetization creates a margin and growth challenge that consensus estimates may not fully reflect. Investors should watch the September iPhone 18 launch for pricing signals — if Apple has to absorb memory costs or pass on steep hikes, the margin story becomes much harder to sustain.