According to Investing.com, Morgan Stanley (MS) has reaffirmed that Apple Inc (AAPL) is their top stock pick as we approach 2025, driven by three significant catalysts that bolster their bullish stance. The integration of Apple Intelligence, an AI-driven initiative, is expected to significantly influence iPhone replacement cycles. Despite current subdued demand for iPhones, the broader rollout of these AI capabilities in fiscal 2025 is anticipated to spur a demand increase. Morgan Stanley’s analysts, led by Erik W. Woodring, forecast a 12% year-over-year rise in iPhone shipments by fiscal 2026, reaching 258 million units, thanks to enhancements like an upgraded Siri, AI image tools, and integration with ChatGPT. This suggests a moderate contraction in replacement cycles by just 0.3 years, still allowing for continued growth.
Moreover, the services segment of Apple is poised for robust growth. Morgan Stanley projects a 11.4% compound annual growth rate for services revenue through 2027, surpassing current consensus estimates. This growth is fueled by potential in pricing power, an expanding user base, and the introduction of new service offerings, including possibly paid AI services, which could add between $7 to $14 billion to services revenue by fiscal 2027. Only half of Apple’s extensive user base currently subscribes to any service, indicating a vast opportunity for revenue expansion.
The third catalyst involves Apple’s expected margin expansion. Over the next three years, Morgan Stanley predicts a steady increase in gross margins, facilitated by a favorable product mix, cost efficiencies, and the rapid growth of the services sector. Although there’s been an uptick in memory costs, the firm anticipates a downcycle in 2025 that will act as a “cyclical tailwind,” with gross margins expanding by an estimated 50 basis points annually through 2027.
This positive outlook is reflected in Apple’s stock performance, which has recently outperformed the S&P 500 by 10 points, hitting all-time highs. This analysis from Morgan Stanley underscores Apple’s strategic positioning to leverage AI, expand service offerings, and enhance profitability, making it a compelling choice for investors looking towards 2025.
Price Action: As of press time, AAPL is changing hands at $246.52, down 0.58% intraday.
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