Morgan Stanley says Apple’s (AAPL) AI transition is entering a lucrative phase, with the company positioned to generate high-return revenue streams.
In a new CNBC interview, Erik Woodring, managing director and equity research analyst at Morgan Stanley, says Apple’s AI strategy blends internal development with external partnerships, a structure he believes could unlock significant upside as new product cycles arrive.
Woodring highlights the overlooked value of Apple’s existing distribution model in search and how that logic may transfer into AI.
“Apple has made a lot of money being the distribution partner for Google search. 15% of Apple’s operating income comes from just being the platform distributing search on Safari. That’s a pretty lucrative business for them. Getting in the business of distributing others’ large language models, where they invest that capex into it, that’s a pretty high ROI business. So my point really is, Apple does believe that they can build some of their own internal technology, but a partnership model and a hybrid model is really where they’re going.”
As for why Morgan Stanley hiked AAPL’s price target to $305, Woodring says Apple is now flashing signs of growth as iPhone sales momentum takes shape.
“So I think there are two things. One yes, the bar was, frankly, low. Apple has not grown at the same pace that it historically has over the course of the last, let’s call it, six quarters. But at the same time, the iPhone 17 is doing better. People are buying the iPhone. The iPhone is 53% of total revenue. And not to mention, services is outperforming… Services is growing 14% annually.
And so why has Apple gone up? Because estimates have moved higher. And the important thing, at least about where Apple is right now, is there are a lot of ways that you can win next year. In some cases, you have to dream the dream to be totally fair and balanced, but at the end of the day, you can look to the iPhone 18 and say they’re coming out with their first foldable. It’s going to be expensive, but Apple iPhone owners are usually willing to pay for that… your first real major innovation in a number of years with your core product. And you can say the iPhone 17 is doing better than expected.”
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