Apple shares moved lower in early Monday trading after a top Wall Street analyst issued a rare downgrade for the tech giant, citing concerns that its new push into artificial intelligence will be slowed by muted demand for handsets.

Apple  (AAPL) , which in early June unveiled its version of AI, dubbed Apple Intelligence, is looking to leverage its dominance in the smartphone market to drive consumer demand for the new technology. The tech giant launched its latest version of its signature iPhone in September and promised to roll out AI-powered features over the coming months.

Early reports, however, show overall demand for the iPhone 16 remains muted compared with previous launches, while rival smartphones from both Samsung and China-based rivals are taking larger chunks of sales from key markets in Asia.

Some analysts, however, see the new iPhone 16, and the likely-improved iPhone 17, driving an upgrade supercycle that will boost handset sales and accelerate the takeup of Apple Intelligence technologies.

Apple is reportedly set to unveil its first Apple Intelligence features later this month, with the launch of its new iOS 18.1 operating system on Oct. 28. That would give first access to iPhone 16, iPhone 15 and iPhone 15 Pro users who update their software.

Jefferies analyst Edison Lee, who assumed coverage of Apple this week, isn't one of them, He says near-term expectations for iPhone sales are "too high (and) a lack of material new features and limited AI capabilities mean high market expectations (5%-10% unit growth) are unlikely to be met."

Apple AI rollouts will take time

Lee lowered Jefferies' rating on Apple to hold from buy and put a $212.92 price target in place, citing the stock's rich valuation of 33 times earnings and the long time frame for AI rollouts.

"We like Apple Intelligence long term, as Apple is the only hardware-software integrated player that can leverage proprietary data to offer low-cost, personalized AI services," Lee said. "However, smartphone hardware needs rework before being capable of serious AI, likely by 2026/27."

Related: Apple has an iPhone 16 problem

Still, Lee argues that Apple has a longer-term advantage in terms of tech and cost development over its Android-based competitors, particularly given its partnership with chipmaker Taiwan Semiconductor  (TSM) , and sees next year's iPhone 17 as ultimately driving stronger sales growth.

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"We believe AI-capable smartphone tech is likely 2-3 years away due to limitations in high-speed memory and advanced packaging tech," he said. "[But] Apple's thin model (17 Air) in 2025 could attract more upgrade demand."

Related: Analysts question iPhone 16 demand pace as Apple stock extends slide

Apple is scheduled to report fiscal-fourth-quarter results on Oct. 31, with early estimates suggesting earnings of around $1.60 a share on revenue of $94.4 billion.

Apple shares were last marked 0.9% lower in premarket trading to indicate an opening bell price of $224.76, a move that would trim their one-month gain to around 1.5%.

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