Real AI smartphones are still a few years away, say Jefferies analysts

• The iPhone 16 lacks new features and a new AI smartphone is years away, wrote analysts on Sunday.
• Apple's stock fell 2.3% after Jefferies cut its rating from buy to hold.
• Despite these concerns, analysts continue to see long-term potential for the iPhone.

One group of analysts finally said what even some of Apple's fans have been thinking: The iPhone 16 was underwhelming, and it will take a while before a real AI smartphone is ready.

In a note on Sunday, analysts at Jefferies said that the iPhone 16's lack of new features and limited AI coverage mean that it might not sell as well as other analysts hope. They added that an AI-capable smartphone is another two to three years away.

"To expect an accelerated smartphone replacement cycle now due to AI is premature," analysts led by Edison Lee wrote. The firm cut Apple's rating from a buy to a hold recommendation.

The iPhone maker's stock fell 2.3% on Monday following the note.

IPhone sales are a closely-tracked metric because they make up about half of the company's total revenue.

Much of the optimism surrounding Apple this year came from its June announcement of Apple Intelligence, the company's take on artificial intelligence. The smartphone maker's stock has rallied over 30% in the last six months, in part over AI excitement.

But the fanfare surrounding the new technology dimmed in July, when Bloomberg reported that the new iPhone 16 would not come with Apple Intelligence. Instead, users would have to wait for AI features, which include an AI-powered Siri and an image generator, to be released through several software updates starting in October.

In Sunday's note, Lee forecasted "flattish volume growth" in the second half of 2024 for iPhone 16 compared to the iPhone 15, and only 2.5% growth in lifecycle volume for the iPhone 16.

To be sure, not all analysts think the delay in introducing Apple Intelligence will hurt the company. Some say it's a small part of the overall product lineup.

"It's like trying to weigh an elephant by a few of its hairs," Gil Luria, an Apple analyst for D.A. Davidson, told Business Insider last month. He said that he gives little credence to third-party reports of iPhone 16 sales.

Even Jefferies' Lee wrote that AI in the iPhone has potential, just not in the short run.

He wrote that Apple "is the only hardware-software integrated smartphone player" and that he is excited about its long-term AI capabilities.

He estimated that the company would have 490 million AI-capable iPhones by 2026, and 845 million by 2027. Apple sold 45.5 million phones in the three months ending in June, according to Counterpoint research data.

In October, 32 of the 38 analysts who covered Apple had a Buy rating on the company.