Apple's stock could be poised for a significant rally, according to a new analyst call that hinges on a potential strategic pivot in its artificial intelligence approach. Rothschild & Co Redburn has upgraded Apple (NASDAQ:AAPL) to Buy from Neutral, setting a price target of $400, which implies roughly 31% upside from current levels.
The upgrade, led by analyst Timm Schulze-Melander, argues that Apple could bolster its AI position by leveraging open-source models, potentially including technology from Nvidia. While no formal partnership has been announced, the note outlines a strategic option that could reshape Apple's competitive standing in the AI race.
Apple's AI strategy under scrutiny
Redburn's thesis begins with a candid assessment: Apple's AI efforts, branded as Apple Intelligence, have so far underwhelmed, and its proprietary foundation models lag behind the frontier. Apple has already turned to Google's Gemini models to power some AI features, but Redburn suggests a more aggressive "Fast Follower 2.0" approach could be beneficial—adopting best-in-class third-party models rather than pouring billions into developing its own.
This is where Nvidia enters the picture. Schulze-Melander noted that a "close, favourable partnership requires both Apple and Nvidia to want it," highlighting Nvidia's Nemotron models as an example of open technology that could reduce Apple's reliance on Google while preserving strategic flexibility. The core idea is that Apple's true advantage lies in its distribution—billions of active devices could make it the gateway through which consumers access leading AI models, even if those models are built elsewhere.
The Nvidia angle
The appeal of an Nvidia or open-model route is clear. Google provides Apple with advanced AI quickly, but it also deepens reliance on a direct competitor across smartphones, operating systems, and services. Open models could allow Apple to maintain greater control over the user experience while cherry-picking external technologies.
This perspective echoes a broader argument from HSBC, which upgraded Apple to Buy in July with a $366 target. Analyst Nicolas Cote-Colisson argued that Apple's relatively modest AI spending could become a competitive advantage as its capabilities and product pipeline improve. Instead of matching hyperscalers dollar-for-dollar, Apple could focus on integrating AI into its devices, software, and services—potentially making the consumer relationship more valuable than the underlying model itself.
Foldable iPhone as a catalyst
Redburn's $400 target is not solely based on AI. The firm also anticipates a major boost from Apple's expected foldable iPhone, forecasting 14 million units of an "iPhone Ultra" in fiscal 2027 at an estimated price of $2,199. Such a device could significantly raise iPhone average selling prices, providing a tangible revenue lift.
However, this assumption is contested. Jefferies analyst Edison Lee downgraded Apple to Underperform on August 10, cutting his target to $263.66. Lee cited concerns about Apple's premium-device roadmap and limited progress in Apple Intelligence, warning that an expensive foldable could remain a niche product.
Market context and risks
The contrasting views capture the current debate around Apple. Redburn sees an opportunity for Apple to sidestep the most capital-intensive part of the AI race and instead become its distribution layer. Jefferies sees execution risks in both AI and premium hardware.
Investors should also consider the broader AI landscape. Nvidia's aggressive expansion, including its $105B OpenAI lease guarantee, underscores the scale of investment in AI infrastructure. Meanwhile, UBS projects Nvidia's Q3 revenue could top $110B, highlighting the sector's momentum. For Apple, a potential partnership with Nvidia could be a game-changer, but it remains speculative at this stage.
As always, investors should weigh the optimistic scenario against the risks. The foldable iPhone's success is far from guaranteed, and Apple's AI strategy is still evolving. The stock's trajectory will depend on execution, competitive dynamics, and broader market conditions.
This article is for informational purposes only and does not constitute financial advice.
