Apple's Outlook: Morgan Stanley's Bullish Prediction for 2025

Analyst Insights

Investing.com — Morgan Stanley (NYSE:MS) analysts have identified Apple Inc (NASDAQ:AAPL) as their top investment choice heading into 2025, driven by three critical catalysts.

1. Apple Intelligence Impact

The anticipated introduction of Apple Intelligence, the company’s AI initiative, is expected to influence iPhone replacement cycles significantly. While current demand for iPhones appears subdued, the broader availability of Apple Intelligence starting in fiscal 2025 is likely to boost demand.

Morgan Stanley projects a 12% year-over-year increase in iPhone shipments, reaching 258 million units in fiscal 2026. This growth is expected to be fueled by upgraded Siri, AI image tools, and ChatGPT integration, indicating only a slight contraction in the replacement cycle of just 0.3 years from an all-time high of approximately 5 years, according to analysts led by Erik W. Woodring.

2. Growth in Services Segment

Apple's services segment is poised for sustained double-digit growth due to pricing power, increasing adoption, and new service offerings. The analysts forecast an 11.4% compound annual growth rate for services revenue through fiscal 2027, surpassing consensus expectations.

Currently, less than 50% of Apple's user base pays for services, but a mid-single-digit annual growth in the installed base and strategic pricing can enhance annual Services growth by 6 percentage points. Furthermore, potential paid AI services could add $7-14 billion in incremental revenue by fiscal 2027.

3. Expanding Gross Margins

Morgan Stanley also anticipates steady expansion in Apple’s gross margins over the next three years. This growth is expected to result from a favorable mix shift, improved cost efficiencies, and higher revenue from fast-growing services.

Despite a rise in memory costs, the firm believes a downcycle in 2025 could serve as a cyclical tailwind. Woodring’s team estimates an annual gross margin increase of 50 basis points through fiscal 2027.

Stock Performance

Apple shares (NASDAQ:AAPL) have outperformed the S&P 500 by 10 points over the past month, achieving all-time highs despite mixed near-term demand, with robust Services growth balanced by weaker iPhone/Product performance due to limited availability of Apple Intelligence. Morgan Stanley maintains a positive outlook, expecting significant acceleration in fundamentals during fiscal 2026, projecting earnings over $8.50 and supporting a price target of $273.