Recent speculation has suggested that Apple might acquire an AI search firm like Perplexity to bolster its artificial intelligence capabilities. However, Morgan Stanley analysts have dismissed these rumors, asserting that such a move does not align with Apple’s strategic direction.
Apple’s AI Strategy:
According to Morgan Stanley analyst Erik Woodring, Apple is not aiming to enter the search engine market. Instead, the company is focusing on enhancing its virtual assistant features by developing proprietary large language models and integrating technologies from third-party partners. This approach indicates that Apple is not positioning itself to compete directly with tech giants like Google, Meta, or Amazon in the AI domain. Consequently, significant AI-related updates from Apple are not anticipated in the upcoming September quarter.
Financial Outlook:
Despite a cautious approach to AI advancements, Apple’s core business remains robust. Morgan Stanley has raised its revenue forecast for Apple’s fiscal third quarter of 2025 to $90.7 billion, marking a 5.8% increase compared to the previous year. This growth is attributed to stronger-than-expected iPhone shipments, higher average selling prices, and steady demand for iPads and Macs.
Investor concerns have emerged regarding potential impacts on the App Store and the lack of guidance on Services revenue in recent earnings calls. However, Morgan Stanley projects that Services revenue will grow by 11.6% year-over-year, with the App Store contributing significantly to this growth. This would represent the eighth consecutive quarter of Services growth between 10% and 15%.
Market Performance:
Favorable exchange rates and consistent consumer demand are expected to drive gains across Apple’s product categories. Morgan Stanley estimates that iPhone performance will exceed consensus expectations by 2%, with iPads and Macs projected to surpass earlier forecasts by 9% and 1%, respectively.
While growth is expected to slow in the September quarter, it is anticipated to remain positive. Morgan Stanley has revised its revenue forecast for that period to $96.5 billion, up from a previous estimate of $95.7 billion. Earnings per share have also been adjusted from $1.56 to $1.61, accounting for favorable currency exchange rates and improved performance across hardware and Services. Gross margins are projected at 46.1%, absorbing $1.5 billion in tariff costs.
Long-Term AI Prospects:
Despite limited AI updates expected this year, Morgan Stanley remains optimistic about Apple’s long-term position in the AI space. The firm does not anticipate significant advancements in Apple Intelligence until after 2026 and does not foresee near-term progress in the Chinese market.
Conclusion:
Morgan Stanley’s analysis suggests that Apple is unlikely to pursue the acquisition of an AI search firm like Perplexity. Instead, the company is focusing on developing assistant-style features built on its own technology stack. Morgan Stanley maintains an Overweight rating on Apple stock, with a price target of $235, reflecting confidence in Apple’s strategic direction and financial performance.
