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

Morgan Stanley's Bullish Outlook on Apple

Morgan Stanley has reiterated its "overweight" rating for Apple (AAPL), maintaining the tech giant as its "Top Pick" heading into 2025. The Wall Street bank's optimistic stance is underpinned by a $273 price target, significantly above Apple's recent record close of nearly $248 1

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AI-Driven iPhone Sales Surge

At the heart of Morgan Stanley's bullish forecast is the anticipated impact of Apple's artificial intelligence (AI) product, dubbed "Apple Intelligence." Analysts predict that this AI integration will catalyze "the largest device upgrade cycle ever" for Apple, potentially accelerating iPhone replacement cycles starting in fiscal year 2026 1

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The bank projects a substantial 12% year-over-year increase in iPhone shipments, reaching 258 million units in fiscal 2026. This growth is expected to be driven by AI-enhanced features such as an upgraded Siri, AI image tools, and potential ChatGPT integration 2

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Services Segment Growth

Morgan Stanley's optimism extends to Apple's services segment, which is forecasted to maintain double-digit growth. Analysts project an 11.4% compound annual growth rate through fiscal 2027, outpacing current consensus estimates. This growth is attributed to Apple's pricing power, expanding service adoption, and the introduction of new offerings 2

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Notably, less than 50% of Apple's user base currently pays for services, suggesting significant room for growth. The potential introduction of paid AI services could further boost this segment, potentially contributing an additional $7-14 billion in revenue by fiscal 2027 2

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Margin Expansion and Financial Outlook

The third pillar of Morgan Stanley's positive outlook is the expectation of steady gross margin expansion over the next three years. This improvement is anticipated to result from a favorable product mix shift, cost efficiencies, and the faster-growing services revenue 2

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While acknowledging near-term challenges such as muted iPhone demand and rising memory costs, Morgan Stanley remains confident in Apple's long-term prospects. The firm projects that Apple's fundamentals will accelerate in fiscal 2026, potentially driving earnings above $8.50 per share 2

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