Investing.com -- Rosenblatt Securities downgraded Apple shares (NASDAQ: AAPL ) to Neutral from Buy and cut its price target to $217 from $263 on Friday, a day after the tech giant released financial results for the second quarter.

“The F2Q25 quarter just reported highlights a company with amazing supply chain skill, and better demand for iPhones than many had feared. Still, for this stock to really work there needs to be an AI driven sharp acceleration in iPhone sales,” analyst Barton Crockett said in a note.

“And as time has gone on the argument for that seems to be fading,” he added.

Apple’s fiscal Q2 sales rose 5.1% year-over-year, or 7.6% on a constant currency basis, reaching $95.4 billion, which aligned with estimates published before the onset of the trade wars and at the high end of Apple’s own guidance.

iPhone sales saw a 2% increase year-over-year, surpassing Rosenblatt’s projections by 200 basis points.

Service revenue grew by 12%, or 14% in constant currency terms.

The company also reported a gross margin of 47.1%, which fell within their projected range and was a 50 basis point improvement from the previous year, despite supply chain disruptions caused by the trade war.

In China, sales trends improved, with only a 2% year-over-year decline compared to an 11% drop in the previous quarter. Apple said that iPhone sales were not affected by the tariff pull forward in the quarter.

Looking ahead, Apple provided guidance for the June quarter, expecting sales to increase by low to mid-single digits year-over-year and projecting a gross margin between 45.5% and 46.5%.

This outlook is set against the backdrop of Apple transitioning the majority of iPhone production to India for the U.S. market and shifting almost all iPad, Mac, Apple Watch, and AirPods production to Vietnam, with China continuing to produce for other markets.

The company anticipates approximately $900 million in incremental tariff costs, though these may be influenced by atypical factors that were not fully clarified.

Apple said a manufacturing purchase obligation, which will be detailed in the upcoming 10-Q filing, may be a contributing factor. “That seems to potentially be an agreement that fixes prices or shares costs with suppliers, we presume. So margin pressure may be more meaningful if tariffs persist,” Crockett wrote.

Rosenblatt’s revision of Apple’s stock rating reflects a departure from the previously anticipated AI-driven upgrade and replacement super cycle.

The brokerage has removed this super cycle from its forward estimates and reduced the growth multiple, basing the new price target on a 27 times price-to-earnings ratio of estimated 2026 earnings, with an expected compound annual growth rate (CAGR) of approximately 10%.

Risks that could potentially impact Apple’s valuation include the continuation or expansion of tariffs and the outcome of the antitrust trial that Google (NASDAQ: GOOGL ) lost, which could affect over $20 billion in payments from Google for search placement on the iPhone, Crockett continued.