Morgan Stanley analysts believe that Apple Inc (AAPL) is the top stock to invest in heading into 2025 for three key reasons. In 2024, the iPhone maker’s stock has climbed a solid 28%, driven by innovations and good earnings. In the new iPhone season, AAPL saw an increase in earnings, as well as hype around its new Apple Intelligence: the company’s AI-driven initiative. With both of those factors playing a role in the company’s growth, there is increased investor confidence in AAPL in 2025.

1. Apple Intelligence

According to Morgan Stanley, Apple Intelligence will have a strong impact on iPhone replacement cycles. While near-term iPhone demand is subdued, Morgan Stanley highlights that broader availability of Apple Intelligence starting in fiscal 2025 could drive a surge in demand.

The firm forecasts iPhone shipments to rise 12% year-over-year to 258 million units in fiscal 2026. Features like upgraded Siri, AI image tools, and ChatGPT integration will all drive demand, the forecast adds. Additonally. Morgan Stanley’s forecast implies “a relatively moderate replacement cycle contraction of just 0.3 years off an all-time replacement cycle high of ~5 years,” analysts led by Erik W. Woodring said.

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2. A Rise in Services Revenue

In addition, Morgan Stanley projects Apple’s services segment to sustain double-digit growth in 2025. A combination of pricing power, expanding adoption, and new offerings will ensure that the company’s services segment remains busy and profitable. The firm also notes that the services revenue will grow at an 11.4% compound annual growth rate through fiscal 2027, outpacing consensus estimates.

Less than 50% of Apple’s user base currently pays for services, according to Morgan Stanley’s research. However, with the addition of Apple Intelligence, this number will surely rise as users get used to the new software. This, combined with a mid-single-digit (MSD) annual growth in the installed base and pricing power could boost annual Services growth by 6 percentage points.

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3. Apple’s Expansion of Gross Margins

Finally, Morgan Stanley expects AAPL’s gross margins to expand steadily over the next three years. The firm states that Apple stock will benefit from a favorable mix shift, cost efficiencies, and faster-growing services revenue.

Erik W. Woodring and his Morgan Stanley research team estimate annual gross margin expansion of 50 basis points for Apple through fiscal 2027. The firm expects fundamentals to accelerate in fiscal 2026, driving over $8.50 in earnings and supporting its $273 price target.

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