KeyBanc's downgrade of Apple (NASDAQ:AAPL) to Underweight, with a $200 price target, sends a strong signal: the iPhone 16 upgrade wave may not be the growth driver many hoped for. A consumer survey revealed a concerning trend59% of respondents showed interest in upgrading to the iPhone 16, but 61% were also eyeing the lower-priced iPhone SE. This overlap suggests that the iPhone SE might be eating into iPhone 16 sales rather than adding to them, posing a real threat to Apple's average selling prices. The idea that revenue growth can accelerate across all product categories and geographies by 2025 feels like wishful thinking.

The outlook dims further when considering the sluggish pace of U.S. smartphone upgrades, with postpaid upgrade rates dipping to 3% from 3.3% the previous year. Despite the hype surrounding Apple Intelligence, questions remain about whether it can meaningfully move the needle anytime soon. The AI initiative has sparked some excitement, but expectations of a rapid rebound seem overly optimistic as consumers and analysts alike wait for clearer signs of momentum.

Apple's valuation adds another layer of risk, with a lofty forward price-to-earnings ratio of 32. The company's next moverolling out an updated iPhone SE in early 2025will need to strike a delicate balance. Without careful management of market expectations, Apple risks further volatility in its stock, especially if consumers continue to gravitate towards the more budget-friendly options.

This article first appeared on GuruFocus.