Apple is on fire. The company is closing in on a historic $4 trillion valuation, riding a wave of investor excitement over its long-overdue artificial intelligence (AI) upgrades.
A 16% stock surge since early November has added $500 billion to its market cap, putting Apple leagues ahead of competitors Nvidia and Microsoft in the race to hit this insane milestone. At $3.85 trillion, Apple’s worth is so massive it overshadows the combined value of Germany and Switzerland’s entire stock markets.
This rally is powered by what analysts are calling an “iPhone supercycle,” driven by AI integrations that promise to rejuvenate sluggish iPhone sales. Investors are betting big that these upgrades will spark a new wave of consumer demand.
“Artificial intelligence is the magic word here,” said Tom Forte of Maxim Group. But Apple’s slow approach to AI has left many wondering if the company is playing catch-up.
Apple’s AI strategy finally takes shape
For years, Apple has been accused of sleeping on AI while its rivals ran ahead. Nvidia, for instance, has seen its stock explode by over 800% in just two years, while Apple’s shares merely doubled. But the tide may be turning.
In December, Apple finally rolled out OpenAI’s ChatGPT integration into its devices, following its June announcement to infuse generative AI across its ecosystem.
This comes after a lot of pressure to prove that Apple is more than just iPhones and AirPods. The company’s AI push is seen as critical to its future, and the timing couldn’t be better.
Analysts believe these upgrades could start a massive handset replacement cycle, with Morgan Stanley pointing to 2026 as the year AI could drive double-digit services growth and expand gross margins.
The analysts call Apple their “top pick” for 2025, citing improving iPhone demand as AI features and availability grow. And with services revenue growing faster than products, Apple’s gross margins are expected to expand by 50 basis points annually over the next three years.
Stock momentum, trade risks, and Trump’s tariffs
Apple’s meteoric rise has pushed its price-to-earnings ratio to a three-year high of 33.5. That’s higher than Nvidia’s 31.7 and Microsoft’s 31.3. But this valuation isn’t sitting well with everyone.
Warren Buffett’s Berkshire Hathaway, which holds Apple as its largest investment, has sold shares this year, citing concerns over stretched valuations.
Adding to the drama, there’s a wildcard in the form of Donald Trump. The President-elect has promised to slap a 10% tariff on goods from China. Given Apple’s reliance on Chinese manufacturing, this could be a problem.
Analysts, though, think Apple might dodge the worst of it. “We believe exclusions are likely for products like iPhones and Macs, just like in 2018,” said Morgan Stanley.
Still, Apple’s shares took a hit last Wednesday after the Federal Reserve announced a slower pace of rate cuts for next year. Tech stocks wobbled, but analysts believe easing monetary policy in the long run will keep the market propped up.
Morgan Stanley has set a $273 per share price target, implying another 10% upside from current levels. The bank predicts Apple could drive over $8.50 in earnings per share by fiscal year 2026.
And investors seem willing to bet on Apple’s ability to deliver. The company has advanced 29% in 2024, outpacing the S&P 500’s 27% gain. And despite concerns over high valuations, 35 out of 49 analysts covering Apple rate it a buy or strong buy.
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