Apple Catalysts 'Out Of Steam,' Says Nomura

Upside, if any, in Apple Inc. (NASDAQ: AAPL)'s share price in the next few quarters will get driven by the company's watch product, according to an analyst Tuesday.

But the Apple Watch is "a solution in search of a problem," according to the analyst, Nomura's Stuart Jeffrey, who maintained a Neutral rating and $133 target on Apple.

Apple, up 13 percent in the past three months, traded recently at $131.46 down $1.19.

"It will take an extra generation or more to see meaningful adoption" of the Apple Watch, according to Jeffrey.

Related Link: Apple Earnings Live Blog: Q2 Conference Call

Moreover, Apple's disclosure Monday that its gross margin on the Apple Watch is below average for the company "also limits the scope," Jeffrey said.

Any Apple stock sell off is likely to be driven by disappointing gross margins according to Jeffrey, who noted that the company's recent margin beat expectations by 160 basis points.

Market share gains for the iPhone in developed regions eroded in the recent period and much of Apple's recent growth came from expanded distribution in China.

"If China continues to correlate well with Japan, then a slowdown there seems likely in coming months, and certainly in 2016," Jeffrey said.

Although Apple could afford to increase its annual share repurchases by $10 billion, adding 5 percent to earnings per share, according to Jeffrey, doing so would boost debt to a level its management won't accept.

"The catalysts have run out of steam," Jeffrey said.