Apple Can't Live Up to Expectations: New Street

Apple Inc. (AAPL) may have beaten its FAANG peers to become the first U.S. company to pass the $1 trillion mark earlier this month, yet one team of bears expects things to turn sour for the smartphone maker as iPhone sales wane in 2019. (See also: 4 Reasons Apple's Big Stock Gains Aren't Over.)

Shares of Cupertino, California-based Apple closed down 0.2% on Tuesday at $215.04, trimming a 27.1% gain year-to-date (YTD), AAPL stock this year is outperforming the broader S&P 500's 7.1% increase and the Technology Select Sector SPDR ETF's (XLK) 14.3% return over the same period. 

In a recent note, analysts at New Street Research downgraded shares of the tech giant to sell, writing that as the company remains at the mercy of boom and bust sales cycles, next year will be a lean one. 

Popularity of iPhone X to Hurt Apple in 2019

Apple posted its most recent quarterly earnings report on July 31, wherein investors applauded strength in its iPhone business and a higher-than-expected average selling price (ASP). Yet New Street's Pierre Ferragu suggests that those factors could actually be bad news for the company as it has set the bar high on the Street for upcoming quarters. The analyst indicated that while the 10th anniversary iPhone X has been "successful and well received" by customers, it has boosted demand at a time when replacement cycles for high-cost, next-gen tech phones are lengthening.

"Demand brought forward this year will drive an 'air pocket', and the introduction of a lower-price premium OLED phone won’t be enough to make up for the shortfall," wrote Ferragu in a note to clients. While higher prices have offset the fact that consumers are taking longer to buy new phones, Apple shares are still apt to rise and fall on the iPhone cycles. While iPhone X demand has boosted Apple in recent quarters, any disappointment in iPhone revenues could hurt the stock materially, wrote New Street. 

Ferragu isn't overly bearish on Apple, however, indicating that he is "constructive on Apple's future." He views upside drivers including pricing power and growing services revenues. His price target of $165 reflects a 30% downside from Tuesday's close. (See also: Apple in Eye of the Storm as Trade War Expands.)