Morgan Stanley Reaffirms Apple As Top Pick For 2025, Eying A Target Price Of $273
2min read Morgan Stanley stated that Apple remains its top pick for 2025, maintaining an overweight rating on Apple's stock with a target price of $273. Analysts led by Erik W. Woodring expressed their continued optimism in several areas: Apple Intelligence will drive an accelerated iPhone replacement cycle starting from the fiscal year of 2026; the services business maintains double-digit growth; and gross margins are also increasing.
The analysts' overweight argument is based on the fact that Apple is at the forefront of its largest ever device upgrade cycle, as the launch of Apple Intelligence improves cycle upgrades and new user acquisition, accelerates the update cycle, and drives record cycles in fiscal years 2025 and 2026, which the market currently underestimates.
Analysts believe that considering the continuous double-digit growth of the services business and the expanding gross margins, Apple's profitability for the fiscal year 2026 could reach $8.52, about 4% higher than market expectations.
Analysts stated that over the past month, Apple's stock performance has outperformed the S&P 500 by 10 points, and the stock price is currently at an all-time high. Although analysts believe that part of Apple's recent outstanding performance is due to market factors and short covering, they still believe that Apple has the ability to increase profitability to over $8.5 in the fiscal year 2026. They indicated that this is also a factor that helps support Apple's recent outstanding performance, as investors may price the next iPhone cycle earlier than past cycles.
Analysts also said that Apple's near-term demand remains mixed, with services business growth exceeding their expectations, but given that Apple Intelligence has not yet been widely provided to users outside the United States, the growth of iPhones and products is relatively weak.
However, analysts believe that the fiscal year 2025 represents a lull before the storm, as the fundamentals for the fiscal year 2026 should accelerate.
Woodring and his team stated that they have discussed five key topics with investors and are optimistic about: 1) Apple Intelligence will accelerate the iPhone replacement cycle starting in the fiscal year 2026; 2) limited risk from Chinese import tariffs; 3) services business maintains double-digit growth; 4) the potential for further increases in iPhone gross margins.
In addition, analysts also inquired with investors about the potential impact on Apple from the Department of Justice's (DOJ) lawsuit against Alphabet and the timing of this event.
Last month, there were reports that the DOJ, out of concerns about Google's alleged monopolistic practices, proposed key measures and is seeking to force Google to sell its Chrome web browser.
Analysts expressed optimism about Apple's Google Traffic Acquisition Cost (TAC) risks in the medium term and believe that these risks remain limited. Traffic Acquisition Cost refers to the expenses incurred by companies to attract visitors to their websites or applications through multiple online channels. For the third quarter ending September 30, Alphabet's TAC was about $13.72 billion, compared to $12.64 billion in the same period last year.
