• Melius Research reiterated a Buy rating and $370 price target on Apple (AAPL), calling the stock's rally to a $5 trillion valuation one of Wall Street's most disliked.
  • Apple shares are up 26% year-to-date, buoyed by relatively low AI capital spending and strong buyback capacity.
  • The firm sees further upside from higher iPhone selling prices, Services growth and new products, though the target implies only about 7.7% additional upside from recent levels.

A Rally That Divides the Street

Apple's march to a $5 trillion market value has been anything but a consensus trade. Melius Research on Monday reiterated its Buy rating and $370 price target on the iPhone maker, according to the firm's note, characterizing the run as one of the most disliked on Wall Street. The call lands as Apple shares have climbed 26% year-to-date, a performance that has left many analysts scrambling to justify valuations they once deemed stretched.

The rally's foundation, Melius argues, rests on three pillars: higher average selling prices for iPhones, steady growth in the company's Services segment, and a pipeline of new products. Apple's relatively restrained capital spending on artificial intelligence has also freed up cash for aggressive buybacks, a dynamic that has supported per-share earnings even as the company navigates a costly AI arms race against deep-pocketed rivals.

Using the reported October 16 share price of $343.46, Melius's $370 target implies roughly 7.7% upside, excluding dividends. That is a more modest call than the headline figure might suggest, and it sits above the broader analyst average target of $340.39 reported by MarketBeat—a level slightly below the current share price. In other words, Melius is more optimistic than the crowd, but not dramatically so.

Earnings Foundation Under Scrutiny

The bull case has a stronger earnings backdrop than the valuation alone implies. Apple's latest reported quarter, fiscal Q3 ended June 27 and released July 30, delivered revenue of $109.4 billion, up 16% year over year, with diluted earnings per share of $2.02, a 29% increase. iPhone revenue rose 21.7% to approximately $54.25 billion, while Services climbed 12.1% to about $30.74 billion. Company gross margin came in at 50.1%, though that figure included roughly two percentage points from tariff refunds—a benefit that added $0.11 to quarterly EPS and that investors should not automatically extrapolate.

Management's outlook for the September quarter calls for revenue growth of 9% to 11%, guidance rather than a reported result. The next earnings call is scheduled for November 2, and it will be the first since John Ternus took over as CEO on September 1, succeeding Tim Cook, who became executive chairman. Ternus, previously the company's hardware engineering chief, has reportedly considered an engineering-led overhaul aimed at introducing products more frequently and creating a leaner organization, according to people familiar with the matter. Apple has not confirmed that a broad restructuring or associated layoffs have been completed.

The Services story remains central to the Melius thesis. Subscriptions and platform fees carry substantially higher gross margins than hardware—recent analysis puts Services gross profit at roughly $76 per $100 of revenue, versus about $40 for products, before corporate operating expenses. That mix shift means even a slowdown in device replacement cycles need not derail profitability, provided the installed base keeps growing.

Cash, Buybacks and the AI Question

Apple's cash generation gives it room to maneuver. Reported figures show $117 billion in operating cash flow and $6.8 billion in capital expenditure over the first nine months of fiscal 2026—a fraction of what hyperscalers are pouring into AI infrastructure. The company returned $33 billion to shareholders in the June quarter, including $25.8 billion through buybacks. That capital-return engine has been a reliable support for the stock, though buybacks flatter per-share metrics rather than substitute for underlying business growth.

The low-capex approach cuts both ways. It preserves financial flexibility, but it does not by itself prove Apple's AI products will be competitive. The company's July results announcement highlighted its new Siri AI, signaling it is pursuing the technology rather than sitting out the race. Still, investors are increasingly rewarding cash discipline over AI exposure alone, a shift that has worked in Apple's favor this year.

Not everyone is convinced. UBS (UBS) has flagged concerns about future iPhone demand, while Evercore (EVR) carries a $380 target, according to recent coverage. The divide reflects genuine uncertainty over whether premium pricing—supported by products such as the new foldable iPhone Duo, which TIME featured along with Ternus on October 15—can sustain demand across all customer groups. Early reports of strong demand are encouraging but do not yet establish sustained sales.

Regulatory pressure adds another variable. European Digital Markets Act requirements have already forced changes to app distribution, payment processing and developer terms in the region, directly touching the Services business that underpins the bull case. Separately, Brussels is reportedly considering revisions to a broad corporate levy that could capture more revenue from companies including Apple, Meta (META) and Google (GOOGL)—a proposal under discussion rather than enacted policy, and one that U.S. officials have opposed as part of a wider trade dispute.

Apple did not respond to a request for comment on the Melius note. For now, the debate hinges on execution: the November 2 results will test September-quarter guidance and offer a fresh read on demand, margins and the new product cycle. Melius's thesis is less about the $5 trillion milestone itself and more about whether pricing power, recurring revenue and cash discipline can keep delivering after the rally.

Correction: An earlier version of this article misstated the timing of Apple's fiscal Q3 results. They were released July 30, not July 31.