After strong earnings, Morgan Stanley inches up AAPL target to $275
Apple's latest earnings have impressed some investment advisors, with Morgan Stanley inching its Apple stock price target up to $275 mostly because of the long-term strength of Services.

Tim Cook, celebrating
While Apple's iPhone sales came in at a bit over $600 million dollars short of the year-ago quarter, there was enough good news in the report for a firm generally bullish on AAPL to increase its price target.
In a note seen by AppleInsider, investment firm Morgan Stanley has hiked its price target for AAPL to $275. This is a boost over just a week ago, where the firm had a $273 target, it now has a $275 goal.
The investment firm was impressed by Apple's vague forecasts for the next quarter. Specifically, the note points out Apple's positive prediction of low double-digits Services expansion year-over-year.
And, it got that installed base update that it wanted to see. As part of Morgan Stanley's estimates for services earnings on January 22, Morgan Stanley assumed an active product user base of 2.3 billion devices, implying that the iPhone replacement cycle is at about 4.6 years.
What was reported was 2.35 billion devices in use, which was apparently enough to satisfy the analysts. According to the firm, this implies a 7% year-over-year growth, with 150 million new devices added over the last year.
Of these 150 million devices, the firm believes that there are about 1.42 billion iPhones in service, just a bit ahead of what was predicted. This implies about 90 million iPhones added to the user base per year.
This has an interesting impact on average revenue per user, according to the firm. Hardware revenue is down about 8% per user, with Services revenue increasing 5% year-over-year.
Average spending per user is a big opportunity for Apple. As it stands, each Apple user spends on the average about $28 per month, between amortized hardware and services purchases. This is in contrast to a $71 cable bill per month, and an average cost of $60 for internet access.
Morgan Stanley expects this number to grow to at least $42 in the next decade.
Other factors cited in the slight AAPL target increase include Apple probably taking advantage of NAND and DRAM commodity pricing decreases to stock up for future savings. The note doesn't appear to be that concerned about the impacts of a strengthening dollar as a giant headwind against Apple's earnings in the current quarter.
Morgan Stanley echoes Apple's opinion on Apple Intelligence driving sales. Apple CEO Tim Cook directly said that iPhone sales were impacted by availability of Apple Intelligence, with both the iPhone 16 performing better than the iPhone 15 in the year-ago quarter, and the firm agrees.
Furthermore, the note states that iOS 18.4 in April is an "important catalyst" looking forward for iPhone sales. That update is expected to have the upgraded Siri, and support for multiple more languages, therefore expanding the demand for the iPhone in the newly-supported countries.
However, while the note doesn't point this out, it's not clear when Apple Intelligence will launch in China -- Apple's largest market outside of the US. And, neither Tim Cook nor Morgan Stanley have any real comment on tariffs by the Trump administration that may or may not materialize, or impact Apple in any real way.
Cook skillfully managed to convince the first Trump administration to make changes to levied tariffs, so Apple wasn't directly impacted by them. It's also clear that Apple's CEO is taking steps to have a good relationship with President Trump, even now in the early days of the second term.
The price target increase on Friday is the firm's "base case." A more bullish scenario that Morgan Stanley points out is a possible acceleration in iPhone replacement cycle, with a shift to the higher-end.
The bear case would require consumer spending to weaken more than expected, with a deceleration in Services spending by users.
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Comments
In a past life I used to write for a financial research company. I would assign price targets to my research… but… I never actually wanted to because it’s arbitrary. I don’t know what the price will be in 12 months. And nobody else does either. 12 months is way too short of a timeframe. If I had to give a price target, I would rather go 5+ years. I still wouldn’t want to give a price target, but 5+ years is at least a long enough period of time. However, that’s too long for financial news outlets. Heck, 12 months is often too long. Tell me what the price will be a week from now! lol
You spend all this time doing the research and writing the report… but who cares, right? Just summarize it with a dollar amount and a 12 month timeframe. That would be great. Thanks. ߤ㦬t;br> (Edit: Weird. This random text to the left was suppose to be a laughing emoji. Does this comment section not support emojis? Ah well.)
But that was a past life, haha. I don’t do financial research (professionally) anymore.
This is why I dislike the stock market. They never seem to trade on actual data just on rumours and intents. Why is Microsoft's stock more than Apple's when Apple is clearly doing better than M$? The Surface is down, Windows is still full of holes, and feature roll-backs in Windows are more than ever it seems? And yet, Apple delivers time and time again and gets shafted by the likes of Morgan Stanley?
Money makers are not rational people.
Over the long-term everything will make sense (mostly… usually… lol). And long-term means years. Multiple years. Not days, weeks or even months. And certainly not the handful of hours of a single day of trading.
Also, if you are asking about Microsoft, the very quick two word answer to that is: (1) Cloud (2) AI
Apple's China problem is something to take seriously as their challenges in bringing onboard a local AI partner has a strong chance to erode and kill their China business over time as the local competitors likely have their own AI services or partner with the Chinese majors. Apple may be well off creating a China domiciled and dedicated AI team for themselves.
Services achieved 100B+ annual run rate and the latest quarter achieved 75% Gross margin on that part of the business or about 2x of the hardware products gross margin. Gross profit contribution of Services is substantial and one of the few areas of Apple that has been consistently growing year on year.
Apple can be a healthy company with stagnant device sales as long as they keep selling into new customers expanding the total installed base and thus growing the Services segment and enabling cross and upselling over time. It is clear that people take longer and longer to upgrade which may not be a bad thing as like a high quality car there has long been superb second hand value in Apple devices.
This forces Apple to likely move towards more solid hardware capability baselines in their product ranges to ensure a strong fundament for services to build on and for it to last over time. I.e. is the Apple business model transitioning into the Playstation business model?
I have long wished for Apple to be less iPhone centric in their strategy and to make TV, Home and Watch first class citizens in the iCloud universe. Each segment is needlessly shackled and can be much stronger segments.
Final rant - personally I want to see Apple move off the stock buyback and move a portion of it towards dividends. A yield of sub-percent is not great.