Morgan Stanley isn’t buying the hype around Apple acquiring a search-based AI firm like Perplexity. While some investors and analysts speculate that an acquisition could help Apple catch up in the AI race, Morgan Stanley sees it as the wrong move and not part of Apple’s playbook.
In a note to investors, analyst Erik Woodring called the idea “misguided,” arguing that Apple has no intention of entering the search market. Instead, Apple is developing virtual assistant features using its own large language models and incorporating technology from third-party partners. Woodring added that Apple isn’t trying to compete with Google, Meta, or Amazon in the same way and won’t be delivering major AI-related updates in the September quarter.
Strong Q3 Outlook Despite AI Caution
While AI progress remains gradual, Apple’s core business continues to perform. Morgan Stanley has raised its revenue forecast for Apple’s fiscal Q3 2025 to $90.7 billion, a 5.8% year-over-year increase. Stronger-than-expected iPhone shipments, higher average selling prices, and steady demand for iPads and Macs are driving the growth.
In the note, the firm acknowledged investor concerns over the App Store injunction and Apple’s silence on Services guidance in the previous earnings call. But Morgan Stanley isn’t worried. It projects Services revenue will grow 11.6% year-over-year, and expects the App Store alone to match that figure. The analysts believe this will mark the eighth consecutive quarter of Services growth between 10% and 15%.
AppleInsider, citing Morgan Stanley’s investor note, echoed the positive sentiment around the upcoming Q3 results. Favorable exchange rates and consistent consumer demand are boosting gains across product categories, according to the firm. It now estimates iPhone performance to exceed consensus by 2%, with iPads and Macs expected to beat earlier projections by 9% and 1% respectively.
Morgan Stanley expects growth to slow in the September quarter but still remain positive. He now forecasts $96.5 billion in revenue for that period, up from a previous estimate of $95.7 billion. It also revised earnings per share from $1.56 to $1.61, factoring in dollar tailwinds and improved performance across hardware and Services. Gross margins are forecasted at 46.1%, absorbing $1.5 billion in tariff costs.
Despite limited AI updates expected this year, Morgan Stanley remains bullish on Apple’s long-term position in the AI space. The firm does not expect Apple Intelligence to move forward in any meaningful way until after 2026 and sees no near-term progress in China either.
Bottom Line
Apple won’t be buying its way into the AI search game. Instead, it’s playing the long game with assistant-style features built on its own tech stack. Morgan Stanley still believes in that approach and has maintained its Overweight rating on Apple stock, with a price target of $235 above recent targets from both JPMorgan and HSBC.
