Appen (ASX:APX) share price smashed after broker downgrade

Here's why Appen's shares are falling on Friday…

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The Appen Ltd (ASX: APX) share price has been among the worst performers on the ASX 200 on Friday.

In morning trade, the artificial intelligence data services company's shares are down a very disappointing 14% to $9.98.

Why is the Appen share price being crushed today?

Investors have been selling down the Appen share price on Friday following the release of a particularly bearish broker note out of the Macquarie Group Ltd (ASX: MQG) equities desk.

According to the note, the broker has downgraded Appen's shares to an underperform rating and cut the price target on them to $9.50.

Why did Macquarie downgrade Appen?

As mentioned above, Appen is a leading provider of artificial intelligence data services. Through its team of over one million contractors, the company provides high quality data to many of the largest tech companies in the world to help them build and improve their AI and machine learning models.

High quality data is extremely important, as without it these models will never reach their full potential.

Macquarie, however, has been speaking to industry participants and notes that there is an emerging trend which has seen some big tech companies look to bypass Appen and directly crowdsource for data annotation services.

It notes that this has been driven by tighter privacy and data retention standards, which has resulted in companies revising their strategies and developing their own crowd-sourcing solutions.

Macquarie believes this will reduce demand for Appen's services. As a result, it has downgraded its earnings and sales estimates to reflect this change, which has ultimately led to a sizeable cut in its valuation for the Appen share price.

Following today's big decline, the Appen share price is now down over 61% since the start of the year.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Appen Ltd. The Motley Fool Australia owns shares of and has recommended Appen Ltd. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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