Opinions remain split across the street as several companies are moving price targets up. BAC has just increased its price target for AAPL by $5 and also highlighted the new MacBook Neo as a potential earnings tailwind; they believe that it is an assembled product that can both retain the existing install base and help to support the wider hardware and software flywheel. 

Evercore Inc., which is also repeating its positive outlook, sees the refreshed Macs and the MacBook Neo as a means to refresh its product line and to engage consumers in its ecosystem deeper, which could provide additional monetization opportunities over time from Apple Inc.’s service offerings. In the last few months, Rosenblatt, JP, and BAC have also raised their price targets, suggesting that there is still upside between where these shares are trading currently and where I expect them to be trading at fair value.

There are many differing opinions among institutional investors concerning the prospects for AAPL, with the views of most large-cap value players exhibiting a higher degree of caution toward their Apple investments. 

Analysts at Morgan Stanley (MS) and Evercore have specified that their upside case is primarily based on ongoing execution across product cycles (i.e., consistently providing quality products; not on one-time launch events) rather than on positive survey results or portfolio refreshes associated with either the i-Phone or the company’s AI related launches but will require ongoing execution to ensure that prices remain consistent. 

UBS Group keeps AAPL at a neutral rating due to increasing memory costs putting pressure on AAPL’s Gross margins, although AAPL also saw a year-over-year decline in Chinese iPhone shipments for the beginning of 2026.

Although Barclays raised its price target for AAPL, it still considers AAPL underweight due to concerns over future iPhone unit trends, pricing power and increasing memory prices, which will limit any additional growth of AAPL and restrict its ability to increase its stock multiple. So, together the minor adjustments at the bottom of fair value and mixed opinions about AAPL from the major institutional players demonstrate how closely related the stock price of AAPL is to small adjustments to assumptions of device pricing, margins and service revenue.

Comparing Apple and the top A.I. companies, you will get a distorted view of who’s winning if you are just comparing the number of large, foundational models that each has created. For example, Google’s Gemini has been released to hundreds of millions of existing users of its other core products, and both OpenAI’s ChatGPT and Anthropic’s Claude are two of the most popular neural networks used for conversational A.I. In short, there are plenty of reasons to believe that Apple is falling behind other major A.I. developers.

Apple’s first step in trying to get ahead of the game regarding other developers was an introduction of a new product called Apple Intelligence, which was supposed to contain contextual assistance through Siri, Apple’s voice recognition A.I. Unfortunately for Apple, both the App Store and Siri underperformed against initial expectations (for example, it was promoted that Siri would be able to work with different applications but this does not seem to have been achieved).

In addition, Apple has not been a participant in AI capital expenditures like many of its competitors; total capital expenditures from large technology companies for 2021 are expected to be approximately $650 billion, the majority of which will go towards developing products for Artificial Intelligence.

As Andy Jassy, Chief Executive of Amazon, stated: “We are going after artificial intelligence with an aggressive approach — we are making investments to be at the forefront.” In stark contrast, Apple is estimated to invest less than $13 billion dollars on capital expenditures through the end of its fiscal year 2021.

Apple’s strategy choice extends beyond a simple matter of cost—it also represents a long-term business strategy whereby it will be able to design, sell, and support products at scale and to run the best in-class AI models on and off its products. 

This next generation of Siri, for example (rumored), will be running off of Google’s Gemini AI Pathway as the base model and it will allow Apple to create an AI product with far greater capabilities than what it currently has available without having complete control over the entire stack of AI hardware.

According to some reports, Apple will be paying Alphabet an estimated $1 billion per year for multiple years to access the Gemini AI Model from Google, which represents only a fraction of what it would cost Apple to build and maintain a leading-edge AI Model from the ground up. 

If this approach does ultimately succeed as planned, then Apple will be able to maintain a very healthy profit margin near 37% as a result of selling premium products while at the same time providing enhanced AI capabilities and will have turned what was perceived to have been a late entry into the AI product offerings sector into a financially viable approach via the creation of strategic partnerships with major technology partners.

Despite the focus being on AI in the news, Apple’s engine continues to run at full speed. In its most recent quarter, Apple reported an increase in revenues by 16% or approximately $144 billion, with earnings per share increasing 19% or $2.84. Partially driving this growth continues to be demand for the iPhone 17; service revenues also increased 14% to approximately $30 billion. 

This is consistent with the idea that hardware adoption creates service monetization. Bullish analysts are using this same logic to cite MacBook Neo and new/improved Mac products as catalysts: product line refresh, strengthen ecosystem lock-in, and increase service user onramps.

The product roadmap is much larger than just being on a continuous change cycle. Several analyst reports support the launch of a first generation of an iPhone featuring a foldable screen sometime in late 2026 (possibly around September); however, there are also several analyst reports indicating that significant technical challenges remain to be resolved prior to the launch and that these challenges could affect both timing as well as functionality of the device itself.

Apple has started testing some new, improved Siri capabilities and has begun developing a standalone Siri application as well as supporting third-party voice interface solutions (such as Google Assistant) in both CarPlay and other third-party applications.

This shows that Apple is shifting to a more modular method for developing intelligence solutions across its entire range of products by using the combined capabilities of multiple intelligent agents throughout its product ecosystem.

On the service/distribution side of its business, Apple continues to work on launching advertisements within Apple Maps and has partnered with EverPass Media on expanding the distribution of sporting events through Apple as part of its ways to drive additional revenue from delivering content and attracting viewership to live events. Apple is also continuing to diversify the manufacturing of its products: about 25% of Apple’s iPhones are now produced in India, and it will be eligible to benefit from government-sponsored Export-Linked Incentive programs, which will reduce its risk associated with concentration and increase the ability to adapt to changes in future cycles.

Most of the bearish argument concerning Apple revolves around costs, units, and geography. As memory prices have continued to increase, there will be greater pressure on gross margins provided that the price of devices and device mix cannot completely offset the increase in prices. 

UBS’s Neutral rating reflects some of the same concerns about Apple’s gross margins being impacted by unit volumes, and forecasts a decline in iPhone shipments from China for Q1 2026. Barclays’ Underweight rating expresses similar worry that Apple may experience difficulty avoiding weakness in the volume of iPhone units, or retaining its high prices versus other competitors if competing A.I.-enabled features are offered on those devices, thereby providing consumers with an incentive either to switch devices or wait before upgrading to an Apple product. 

While these potential negatives do not change the overall ecosystem story for Apple, they add a layer of complexity that is compounded if the continued growth of Apple’s services business depends on having a large, high-value device customer base.

Operational decisions on where and how Apple serves customers are getting more scrutiny. The company is closing its first unionized retail store in the U.S. (a retail store in Maryland), which brings back into focus labor relations and how physical retail is improving Apple’s ROI. Making about 25% of iPhones in India will allow Apple to continue to diversify production and create incentives to build new facilities which can drive supply chain flexibility and provide additional export opportunities over time.  

While these decisions will not necessarily drive near-term stock performance for Apple the same way through product sales or service margins will, they will have a long-term impact on the cost structure of the company, risk profile and brand image.

The decision to invest in Apple depends on whether the company must create its own AI model to take advantage of existing artificial intelligence applications. 

Right now, Apple appears happy to integrate leading-edge artificial intelligence models from other companies, to significantly update Siri with artificial intelligence, and to rely primarily on the efforts of premium devices and sticky services to provide value to customers. This isn’t abdication; it’s a strategy for maintaining margins while continuing to allow customers to experience a positive difference as a result of artificial intelligence innovations. 

Investors who buy Apple shares will be watching closely this year with the rollout of an improved Siri to see if these improvements arising from the integration of artificial intelligence will make everyday tasks easier for consumers; and whether there will be any shifts in device demand if other manufacturers tout device-based artificial intelligence as an essential feature, putting Apple’s pricing and product mix strategies at risk.

Delivering a successful product cycle is far more important to consumers than any one-off AI demonstration, as the data gathered from surveys performed by Morgan Stanley and Evercore indicates that consumers remain positively inclined to upgrade their current iPhones based on how well the new iPhone’s AI features work. In addition, all four large firms, including Bank of America, Rosenblatt, JPMorgan, and Evercore, continue to see potential upside within their models, while UBS and Barclays continue to caution that costs, China, and units could ultimately derail the overall positive narrative. 

Even if we end up seeing a foldable iPhone in the future, the fact that these devices are experiencing technical challenges means that investors should not consider a timeline for release to be a certainty. On the services side, adding an additional revenue stream via increased ads in Apple Maps along with additional sports distribution via EverPass Media, does not require significant amounts of capex and will also provide Apple with the ability to give users more options through the CarPlay platform by allowing other AI assistants access to use the CarPlay system.

Apple doesn’t need to outspend Microsoft and Alphabet to realise AI value if it plugs superior intelligence into a premium hardware-and-service ecosystem at scale. 

The company’s continued growth in both net sales and EPS over the course of the quarter, as well as its strong service revenue growth, contributed to its legacy engine remaining very successful even during the frequent evolution of its AI strategy. 

As you wait for the complete roll-out of Siri’s new offering, assess the overall trend in iPhone demand and consider how well or poorly Apple performs amid overall cost pressures relative to the need to keep healthy margins. Provided Apple delivers valuable AI functionality without incurring high capital expenditures and produces reliable device cycle periods, the divergent approach taken by Apple may ultimately be the correct strategy for Apple Shareholders.