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.
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.
