Morgan Stanley Bullish on Apple: AI-Driven Growth and iPhone Sales Surge Predicted

Apple Remains the 'Top Pick' at Morgan Stanley, Which Sees AI Driving iPhone Sales

Morgan Stanley reiterated its "overweight" rating and price target of $273, above Apple's record close near $248 on Thursday. Apple (AAPL) remained Morgan Stanley's "Top Pick" heading into 2025, with the Wall Street bank saying that the tech giant's artificial intelligence (AI) product will drive more iPhone upgrades by consumers. "We are bullish on ... Apple Intelligence starting to accelerate iPhone replacement cycles in FY26," the analysts wrote Friday in their report. Apple "is on the cusp of its largest device upgrade cycle ever" because of the launch of Apple Intelligence, which they said would result in a record-breaking 2025/2026 fiscal-year cycle "that is underappreciated by the market today," the Morgan Stanley analysts wrote. The analysts also said they expect Apple to sustain its services growth at double digits and for the company's gross margins to expand. The analysts stuck with their "overweight" rating on the tech firm, noting that they remain bullish on its earnings power driving the stock price to their current target of $273 even as the stock hovers near its all-time high.

3 reasons why Apple stock is Morgan Stanley's Top Pick for 2025 By Investing.com

The first catalyst is the anticipated impact of Apple Intelligence, the company's AI-driven initiative, on iPhone replacement cycles. While near-term iPhone demand is subdued, Morgan Stanley highlights that broader availability of Apple Intelligence starting in fiscal 2025 could drive a surge in demand. The Wall Street firm forecasts iPhone shipments to rise 12% year-over-year to 258 million units in fiscal 2026, propelled by features like upgraded Siri, AI image tools, and ChatGPT integration. The forecast implies "a relatively moderate replacement cycle contraction of just 0.3 years off an all-time replacement cycle high of ~5 years," analysts led by Erik W. Woodring said. Second, Apple's services segment is projected to sustain double-digit growth, driven by a combination of pricing power, expanding adoption, and new offerings. Morgan Stanley expects services revenue to grow at an 11.4% compound annual growth rate through fiscal 2027, outpacing consensus estimates. Analysts note that less than 50% of Apple's user base currently pays for services. This, combined with a mid-single-digit (MSD) annual growth in the installed base and pricing power could boost annual Services growth by 6 percentage points. Furthermore, the potential introduction of paid AI services could contribute $7-14 billion in incremental Services revenue by fiscal 2027. Finally, Morgan Stanley expects Apple's gross margins to expand steadily over the next three years, benefiting from a favorable mix shift, cost efficiencies, and faster-growing services revenue. While memory costs have risen, the firm points to a likely downcycle in 2025 as "an emerging cyclical tailwind in 2025." Woodring and his team estimate annual gross margin expansion of 50 basis points through fiscal 2027. Apple shares (NASDAQ:AAPL) have outperformed the S&P 500 by 10 points over the past month, reaching all-time highs. While near-term demand is mixed, with strong Services growth but muted iPhone/Product performance due to limited Apple Intelligence availability, Morgan Stanley remains bullish. The firm expects fundamentals to accelerate in fiscal 2026, driving over $8.50 in earnings and supporting its $273 price target.