Why HSBC downgraded Apple

Europe’s largest bank says Apple’s hardware growth is “broadly over for now.”

From a note to clients snagged Tuesday by CNBC:

“Apple’s iconic hardware unit growth is broadly over for now. Revenues are only supported by higher selling prices and by the development of services. Flat unit growth has hit Apple’s share price and incidentally its key suppliers. What has made the success of Apple, a concentrated portfolio of highly desirable (and pricy) products is now facing the reality of market saturation.

HSBC also went into an in-depth analysis of whether Apple should trade at a higher earnings multiple in line with stocks that sell luxury goods. It concluded that Apple’s shares are not “particularly expensive” but don’t deserve a higher multiple associated with luxury brands.

And if its multiple won’t expand, there isn’t any other way to justify a higher stock price since earnings and revenue growth are likely to slow, the analysts said.

“As Apple moves from very high double-digit revenue growth to a more pedestrian mid single-digit (both top and bottom line), the slowdown in the second derivative of growth will weigh on the stock’s investment case,” the note said. “While we understand the company’s interest of not disclosing unit sales of hardware and focusing more on service gross margin, investor enthusiasm could be the victim of a lengthy transition phase as the focus shifts.”

Downgrades rating to Hold from Buy and lowers price target to $200 from $205.

My take: Apple gave up most of Monday’s gains in early trading Tuesday, but uncertainties about the tariff truce surely weighed more heavily on the stock than this downgrade. HSBC is a big bank—the 7th largest in the world—but it’s a minor player in Apple analysis. Waiting to see the note.