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J.P. Morgan on Friday removed Apple Inc (NASDAQ: AAPL) and Qualcomm Inc (NASDAQ: QCOM) from the list of most preferred stocks,
saying that slowing demand for smartphones is likely to hit the companies’
growth.
The decision to drop the tech giants from the brokerage’s “Analyst Focus
List” comes as experts warn that fresh COVID-19 lockdowns in China and the
inflation of goods prices due to the Russia-Ukraine conflict could hurt the
demand for smartphones this year.
In a note to investors, J.P. Morgan analyst Samik Chatterjee said a
pullback in consumer spending would temper higher expectations from the recent
iPhone SE launch.
Moreover, a slowdown in gaming in China could weigh on iPhone maker’s
services.
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Apple is also planning to lower the production of its newly launched
entry-level iPhone SE and AirPod due to a demand slowdown caused by the Ukraine
crisis and rising inflation, Nikkei reported on Monday, citing people familiar
with the matter.
On the other hand, smartphone chipmaker Qualcomm will likely be affected
by the weakness in the smartphone market for low-end and mid-range Android
handsets, Chatterjee said.
Shares of Apple and Qualcomm have dropped around 0.7% and over 4.2%,
respectively, on Friday.
Effect of macro trends
A team of analysts, led by Nicholas Rosato, noted that there were “early
signs” of a setback from value stocks into growth stocks are signs of a
recession appear to be a focus of investors, one that is “driving favor towards
quality and growth even if it comes at a rich multiple.”
“There has been understandably a lot of noise around demand weakness
across global tech, but we believe the macro weakness seeping through the
sector will impact the consumer end-markets more materially,” the analysts
noted.
However, based on longer-term potential, J. P. Morgan still maintains
its “overweight” rating for Apple and Qualcomm, which is equivalent to a “buy”
rating.
Instead, the brokerage firm is moving Arista Networks Inc (NYSE: ANET) and Ciena Corp (NYSE: CIEN) to the Analyst Focus List, as it expects
“strong resiliency in spending from both Telecom customers towards their
networks, as well as from cloud companies towards building infrastructure to
support workload migration to the cloud.”
Picture Credit: SCMP