Apple's AI Upside and Resilient Earnings Keep Wall Street Bullish on AAPL

Apple Inc. is a top AI stock with a consensus Buy rating on Wall Street. Bank of America reiterated its bullish stance on Apple, citing early-stage AI adoption and a pending PC refresh cycle as key drivers. Analysts maintain a Buy rating, pointing to resilient earnings and strong capital returns. The average price target of $240 implies a 3.2% upside, but the Street-high target of $275 implies an 18.3% upside.

Apple Inc. (NASDAQ:AAPL), the tech giant known for its innovative products and services, continues to navigate a complex landscape of opportunities and challenges. With a market capitalization of $3.46 trillion and trading near $233, the stock is currently trading above its Fair Value [1]. Despite legal and regulatory pressures, Apple's resilience and potential for growth through artificial intelligence (AI) and services expansion have been highlighted by recent analyst reports.

Apple's App Store revenue has shown strong performance, with Evercore ISI reporting a 13% growth in May 2025, despite ongoing legal challenges [1]. The company's ability to maintain this growth in the face of rulings requiring third-party payment options has surprised some analysts. However, potential headwinds from proposed tariffs on imported iPhones could impact production costs and pricing strategies. Morgan Stanley notes that while there are concerns about potential revenue loss from the US App Store due to legal rulings, surveys indicate that only a small percentage of users are likely to switch to external payment methods [1].

The Services segment has become increasingly crucial for Apple's growth and valuation. Evercore ISI reports that this business has grown from $40 billion in 2018 to $96 billion, with margins expanding from 60.8% to 75.7% [1]. Apple's current P/E ratio stands at 35.33x, reflecting the market's premium valuation of the company's growing services business and overall financial health [1]. However, the App Store faces regulatory risks, and the lucrative payment from Google for default search engine status is threatened by both regulatory actions and technological shifts towards AI-driven search.

Analysts estimate that Google’s payment to Apple amounts to $20-$24 billion annually, with approximately 50% of this revenue coming from the US market [1]. Apple's AI strategy has become a focal point for analysts and investors. The company is expected to unveil significant software updates and features at its 2025 Worldwide Developers Conference (WWDC), including AI-enabled battery management and eye-scrolling on Vision Pro [1]. However, the delayed release of AI-powered personalized Siri features until 2026 has impacted stock performance.

Apple faces ongoing legal challenges, including the Epic Games lawsuit and potential impacts from the Department of Justice’s case against Google [1]. The European Union’s Digital Markets Act (DMA) serves as a case study, with analysts noting that similar legislation did not significantly impact growth or monetization in that region [1]. Evercore ISI suggests that if Apple wins its appeal against Epic Games and avoids negative impacts on the App Store, while also successfully navigating the DOJ’s case against Google, the company could see its FY26 EPS reach $9, potentially driving the stock price to $300 [1].

Analysts project continued growth in Apple’s revenue and earnings. Morgan Stanley forecasts EPS of $6.75 for FY 2024, rising to $8.64 for FY 2027 [1]. The firm maintains an "Overweight" rating with a price target of $235, citing Apple’s strong market position and potential for favorable outcomes in legal disputes [1]. InvestingPro data shows the company’s current revenue at $408.62 billion with a healthy revenue growth of 6% forecast for FY2025 [1].

Despite challenges in mature markets, Apple continues to see growth opportunities in emerging economies. J.P. Morgan’s analysis highlights significant growth in iPhone sales in markets like India and Brazil [1]. As these economies develop and consumers’ purchasing power increases, Apple could tap into a large new customer base for its products and services.

References:
[1] https://www.investing.com/news/swot-analysis/apples-swot-analysis-stock-faces-legal-challenges-amid-ai-push-93CH-4194273