Apple Could Hit $400, But AI Is Coming for Its Most Profitable Business

Apple Inc. has received an upgraded rating from investment firm Rothschild Redburn, with the stock price target raised to $400 from $260. The firm's confidence in Apple is based on two key factors: the company's entry into the premium foldables market and its strategic shift towards the Apple Intelligence platform. Analyst James Cordwell expects iPhone sales to grow at a 12% five-year annual compound rate, outpacing consensus expectations between fiscal years 2026 and 2030.

This growth is primarily driven by the potential launch of the iPhone Ultra, which will introduce a new product category and increase average selling prices across the iPhone lineup. The firm also believes that Apple's Services business, which has grown three times faster than its product sales, holds significant value and could contribute to increased profitability.

However, the analyst group warns that the rise of closed-source AI models from companies like OpenAI and Anthropic could disrupt Apple's Services segment, as consumers may begin using AI assistants outside of the Apple ecosystem. To counter this, Apple could leverage open-source AI models, delegate workloads to a network of these models, and monetize AI interactions through platforms like Apple Pay.

While the AI potential may threaten Apple's monopolistic position, the company's strong customer loyalty and extensive user base provide a foundation for adapting to this shift. Currently, 170 hedge funds hold Apple stock, with limited bearish sentiment indicated by a short interest of 0.97% to 1% of the company's total public float.

The investment firm maintains a positive outlook on Apple's valuation multiple, supported by factors such as higher device prices, incremental unit demand, and a more adaptable AI strategy.