Analysts at Baird remain optimistic about Apple (NASDAQ:AAPL), maintaining an Outperform on the stock rating and raising the target price from $200 to $240, driven by the potential of Apple Intelligence.
The firm said it has recommended AAPL for years due to its expanding ecosystem, growing services contribution, strong cash flow, and innovation leadership.
The introduction of Apple Intelligence, seen as a significant upgrade catalyst, is expected to boost revenue and EPS growth substantially, especially after years of slowing upgrade rates, with AT&T and Verizon reporting new lows this week.
"Following years of slowing upgrade rates, including new lows for AT&T and Verizon this week, we believe Apple Intelligence could provide a much-needed upgrade catalyst," they wrote.
Baird has increased its fiscal 2025 iPhone and total revenue forecasts by 9.3% and 5.9%, respectively, slightly above consensus. For fiscal Q3, Baird forecasts total revenue of $83.1 billion, up 1.6% year-over-year (YOY), with services revenue growing 12.8% to $23.9 billion.
However, iPhone revenue is expected to fall 3.5% YOY to $38.3 billion. The focus will shift to fiscal Q4, with the next iPhone launch anticipated in late September. Baird projects FQ4 iPhone revenue to grow by 1.2% with EPS up 4%.
Baird notes the lengthening smartphone upgrade cycles have resulted in a much older iPhone base, indicating that the 1 billion+ iPhones globally could be primed for an upgrade catalyst.
According to the firm, Apple Intelligence, supported only by the 15 Pro and 15 Pro Max models, will require nearly 95% of iPhones globally to upgrade to take advantage of this feature.
Baird's semiconductor team reports positive initial channel feedback, predicting over 90 million procurement units for the upcoming iPhone lineup, up from last year's low-80s levels.
Furthermore, Baird estimates that every 10 million additional iPhone units could add approximately $9 billion in revenue and $0.12 of EPS to fiscal 2025 estimates.
Apple Intelligence, which enhances Siri capabilities using generative models and personal context, is expected to significantly impact Apple's future performance.
Consequently, Baird has raised its fiscal 2025 iPhone revenue estimate to $216.1 billion, implying a YOY growth of 9.0%, alongside modest increases in services and other product lines. Total revenue and EPS are projected to reach $418.1 billion and $7.30, respectively.