Caution: TV May Become Apple’s Achilles Heel

The faithful will never cede that anything is wrong at Apple, but a little known research firm may have identified big trouble.

In a research note that's garnering a lot of attention on the Street, an analyst at Oracle Investment Research did the unthinkable – he downgraded Apple to Hold from Buy and cut his price target to $650 from $670.

Part of the downgrade stems from Apple’s latest superlative – earlier in the week Apple became the most valuable publicly traded company ever.

“The hype is concerning,” says analyst Laurence Balter.

He worries that Apple today may be similar to Microsoft in 1999, when it was the largest stock by market cap. At that time the stock traded just south of $60. Today it’s half that.

Aside from the massive market cap, another major part of the downgrade has to do with Balter's concerns about Apple TV. In the same way that today’s investors look back on the Microsoft Zune and Microsoft Kin with disdain, in years to come, Balter thinks the same may happen with Apple TV.

On CNBC's Fast Money, Balter says “my concern is also that Apple is going into a realm that they know little about. We believe entering the low margin world of television set top boxes and TV is fraught with margin danger.”

Last week reports surfaced that Apple was in talks with U.S. cable operators about allowing viewers to use an Apple TV device as a set-top box for live television and other content.

Reports quashed at least some speculation that Apple was developing a so-called iTV, which would transform the living room by integrating all Apple technologies and devices in a flat screen TV.

If Apple is only developing a set top box the market is bound to be disappointed.

Trader Jon Najarian, however, isn’t worried. In fact, he's a buyer of any pullback. “I wouldn’t worry about margin compression -Apple could give the set top boxes away. Apple TV is about winning audience by controlling the overall experience,” Najarian says. "This is a terrible reason for a downgrade."

Posted by CNBC's Lee Brodie

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Trader disclosure: On August 21, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Josh Brown is long AAPL; Josh Brown is long DEM; Jon Najarian is long AAPL CALL SPREADS; Jon Najarian is long BAC CALL SPREADS; Jon Najarian is long JPM CALL SPREADS; Jon Najarian is long WFC CALL SPREADS; Jon Najarian is long GLD CALL SPREADS; Jon Najarian is long SBUX CALL SPREADS; Jon Najarian is long FB CALL SPREADS; Jon Najarian is long EEM CALL SPREADS; Jon Najarian is long GLUU; Jon Najarian is long CME; Jon Najarian is long CBOE; Jon Najarian is long STSI; Stephen Weiss is long JPM; Stephen Weiss is long AAPL; Stephen Weiss is long TBT; Stephen Weiss is long WLT; Joe Terranova is long VRTS; Joe Terranova is long MCD; Joe Terranova is long SBUX; Joe Terranova is long WFM; Joe Terranova is long AAPL; Joe Terranova is long CSTR; Joe Terranova is long CHKP; Joe Terranova is long EMC; Joe Terranova is long NXPI; Joe Terranova is long SEPT. XLF $15 CALLS; Joe Terranova is long AAPL $640 PUTS

For Ann Winblad
Ann Winblad is long AAPL
Ann Winblad is long GOOG with wires.