rewrite this title and make it good for SEOWall Street Lunch: Apple Is Morgan Stanley’s Fave For 2025

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Morgan Stanley cites largest device upgrade cycle ever. (0:15) ‘Kraven the Hunter’ flops. (3:32) BofA chooses top chip stocks. (4:03)

This is an abridged transcript of the podcast.

Our top story so far. Morgan Stanley says Apple (AAPL) remains its top pick heading into 2025, and the firm maintained its overweight rating and $273 price target.

Analyst Erik Woodring said they’re still bullish on Apple Intelligence accelerating iPhone replacement cycles starting in fiscal 2026, double-digit services growth, and gross margins expanding.

The Overweight thesis is that Apple is on the cusp of its largest device upgrade cycle ever, as the launch—and limited backward compatibility—of Apple Intelligence improves upgrade cycles and new user acquisition and accelerates replacement cycles. This should result in a record-breaking fiscal 2025/fiscal 2026 cycle that is underappreciated by the market today.

All of this should lead to Apple earnings around $8.52 per share in fiscal 2026, about 4% above consensus, he said.

Apple has outperformed the S&P 500 by 10 points over the last month, with the tech giant now trading at all-time highs. While the recent outperformance may be linked to market factors and short covering, the analysts are still bullish on Apple’s ability to drive over $8.50 of earnings power in fiscal 2026, which they think is also a factor helping to support near-term outperformance.

Woodring said they discussed five key topics with investors and are bullish on Apple Intelligence starting to accelerate iPhone replacement cycles in fiscal 2026, limited risk to China import tariffs, sustained double-digit services growth, and potential for further iPhone gross margin upside.

Looking to the economy. S&P Global’s U.S. Composite PMI rose to 56.6 in December’s flash estimate from 54.9 in November. That indicates the fastest expansion of business activity since March 2022 amid strength in the services economy but further deterioration in manufacturing production.

A rise in service sector activity (services PMI: 56.6 vs. 55.1 consensus and 54.9 prior) contrasted with a steeper fall in manufacturing production (manufacturing PMI: 48.3 vs. 49.4 expected and 49.7 prior).

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The service sector expansion is helping drive overall growth in the economy to its fastest for nearly three years, consistent with GDP rising at an annualized rate of just over 3% in December.”

Among active stocks. J.P. Morgan upgraded Okta (OKTA) to Overweight from Neutral, noting that the company is well positioned for increased demand.

Analyst Brian Essex said Okta reset expectations with a conservative initial look at fiscal 2026 revenue growth this quarter, and now the risk/reward is attractive as they see Identity moving up the priority stack.

Honeywell (HON) said its board continues to explore additional strategic alternatives, including the potential separation of its aerospace business. The board has made significant progress, and the company plans to provide an update when it reports Q4 results, it said.

Activist investor Elliott Investment Management, which has called for a split of Honeywell’s aerospace and automation businesses after taking a $5 billion-plus stake in the company in November, praised the move.

And Super Micro Computer (SMCI) is the biggest decliner in the S&P after news that it is looking to raise capital and would be replaced in the Nasdaq 100 (QQQ).

In other news of note. “Kraven the Hunter,” the latest Spider-Man spinoff, flopped at the box office this weekend while “Moana 2” finished at the top for the third straight weekend.

“Kraven,” featuring Spider-Man’s nemesis, made just $11 million in its opening days, well below “Moana 2,” which earned $26.6 million, and “Wicked,” which brought in $22 million in its fourth weekend to take second position.

“Gladiator II” added $7.8 million in its fourth weekend to finish in fourth place.

“Red One,” which made $4.6 million, finished out the top five.

And in the Wall Street Research Corner. Bank of America issued its call for next year’s top semiconductor stocks, with the list including some of the usual heavyweights.

Nvidia (NVDA), Broadcom (AVGO), and Marvell Technology (MRVL) are on the list, as are Lam Research (LRCX), On Semiconductor (ON), and Cadence Design Systems (CDNS).

Analyst Vivek Arya says, “We see 2025 as a year of two different trends.”

“In the first half, AI investments and NVDA Blackwell deployments driven by US cloud customers sustain momentum in AI semis. However, in the second half, interest could shift to less-crowded auto/industrial chipmakers on inventory replenishment and pick-up in auto production, assuming a global economic recovery.”

Overall, sales are forecast to grow 15% to $725 billion in 2025, a “strong pace,” albeit a decline from the 20% growth seen this year, Arya added.

Nvidia, Broadcom, and Marvell should benefit from AI exposure, while Lam Research should benefit from the spending recovery in flash memory and China. On Semi is poised to benefit from the “eventual” recovery in the automotive and electric vehicle space (likely in the second half of the year), while Cadence is the leader in the electronic design automation space.