Key Takeaways:
Morgan Stanley raised its Apple Inc. price target to $360 from $330, saying new artificial intelligence features unveiled at the Worldwide Developers Conference will trigger a multiyear hardware upgrade cycle.
"WWDC 2026 illustrated clear progress on Apple's AI roadmap and suggested earlier monetization opportunity than we expected, but also showed Apple Intelligence improvements will be a marathon, not a sprint," Erik Woodring, analyst at Morgan Stanley, said in a note Tuesday. The firm maintained its overweight rating.
The new AI-powered Siri requires 12 gigabytes of unified memory, a hardware threshold that renders about 1.3 billion existing iPhones incompatible with the upgraded assistant. Woodring forecasts nearly 500 million iPhone shipments over two years, tapping a pool of more than 1.3 billion active devices worldwide. About 850 million of those cannot support Apple Intelligence at all, he said.
Apple shares fell more than 3% on Tuesday after the WWDC keynote, reversing a rally that had pushed the stock to record highs. The $360 target implies about 20% upside from Monday's close of $301.54. Apple reported fiscal second-quarter revenue of $111.2 billion and diluted earnings per share of $2.01, marking its eighth consecutive EPS beat, and authorized a new $100 billion share repurchase program.
The analyst expects the new Apple Intelligence features to boost services revenue growth above 10% in 2027 and drive mid-teens product revenue growth. The photo editing tools, including the Clean Up feature and spatial reconstruction, represent "the clearest near-term monetization opportunity," Woodring wrote. He said Apple could introduce new iCloud pricing tiers as early as this fall to capture additional revenue from users who exceed compute limits on older devices.
The average iPhone owner has held onto their device for about 4.5 years since the iPhone 12 launched in 2020, Morgan Stanley estimates. The AI features requiring 12 gigabytes of memory effectively draw a line between devices that can handle Apple Intelligence and those that cannot, creating what the firm called the most substantial upgrade catalyst since the 5G era.
The upgrade thesis signals that Apple's services-driven growth model could accelerate sooner than the market prices in. Investors will watch Apple's quarterly shipment data and services revenue growth in coming quarters for signs the cycle is materializing.
This article is for informational purposes only and does not constitute investment advice.
