• Rothschild Redburn upgrades Apple to Buy from Neutral, raising its price target to $400.
  • The firm cites Apple's 2.55 billion-device installed base, high-margin Services, and AI potential as key drivers.
  • iPhone sales are forecast to grow at a 12% five-year CAGR, with the expected launch of the premium iPhone Ultra foldable.

A Bullish Call

Apple Inc. received another vote of confidence on Thursday as Rothschild Redburn lifted its rating on the tech giant to Buy from Neutral, sending shares up 1.2% in pre-market trading. The new price target of $400 represents a 22% upside from the last close, reflecting growing optimism around Apple's AI strategy and its ability to monetize its massive user base.

"Apple's installed base is a fortress," said analyst James Johnson in a note to clients. "With 2.55 billion active devices, the company has an unrivalled platform to deliver AI services at scale." He highlighted the Services segment, which now accounts for over 20% of revenue and carries gross margins north of 70%, as a key profit engine.

AI as the Catalyst

Investors have been clamoring for Apple to articulate its AI vision, and recent upgrades suggest they are starting to believe. The company is expected to unveil a host of on-device AI features at its Worldwide Developers Conference in June, positioning itself as the "gatekeeper" of consumer AI, according to Rothschild Redburn.

"Apple's privacy-centric approach gives it a unique advantage," Johnson wrote. "As AI moves to the edge, Apple's devices become the primary interface." The firm sees AI as a catalyst for both hardware upgrades and Services growth, potentially driving a "supercycle" of device replacements.

The iPhone Ultra Opportunity

Beyond AI, Rothschild Redburn is betting on a new product category. The firm expects Apple to enter the premium foldable market with an "iPhone Ultra" as soon as next year, which could reignite iPhone growth. iPhone sales are projected to climb at a 12% compound annual growth rate over the next five years, outpacing the broader smartphone market.

"Foldables are the next big thing, and Apple has been conspicuously absent," said industry analyst Ming-Chi Kuo, who has previously reported on Apple's foldable prototypes. "If they launch a high-end device with a premium price tag, it could significantly boost average selling prices."

Market Reaction

Apple shares have gained 15% over the past month, outperforming the Nasdaq 100, as a wave of analysts raised their targets. Wedbush Securities lifted its price target to $400 earlier this week, while Morgan Stanley and Bank of America have also increased their estimates, citing similar AI-driven growth prospects.

"The market is finally recognizing Apple's AI potential," said portfolio manager Rachel Lee of Horizon Investments. "But a $400 target implies a market cap approaching $6 trillion, which would be unprecedented. There's little room for error."

Rothschild Redburn's upgrade is its first since downgrading Apple in 2022, when concerns about China supply chain disruptions weighed on the stock. The firm now believes those risks have subsided, noting Apple's ongoing diversification into India and Southeast Asia.

We reached out to Apple for comment but did not receive an immediate response.

Correction: An earlier version of this article incorrectly stated that Rothschild Redburn had previously set a price target of $260. In fact, that target was from a different firm.