Rothschild & Co Redburn has upgraded Apple (NASDAQ:AAPL) from Neutral to Buy and lifted its price target sharply to $400 from $260, citing the company’s expected entry into foldable smartphones alongside the potential evolution of its artificial intelligence strategy.
Analysts led by Timm Schulze-Melander said Apple’s AI offering, Apple Intelligence, has so far fallen short of expectations, with the technology group relying on a customised version of Google’s Gemini model for capabilities including an upgraded Siri.
Apple is reportedly paying Google around $1 billion annually to access the model. At the same time, Google continues to pay Apple approximately $27.5 billion each year to secure search placement across its devices.
Open-source AI could reduce Apple’s dependence on Google
Redburn believes Apple could improve its competitive position by embracing open-source AI models, potentially through a partnership with Nvidia. The analysts described such an approach as “Fast Follower 2.0.”
The team highlighted Nvidia’s Nemotron models, saying the technology “matches closed, frontier model performance” and could provide Apple with an alternative to its current dependence on Google’s AI technology.
However, the analysts acknowledged that relations between Apple and Nvidia have previously been “genuinely acrimonious,” potentially complicating any closer partnership between the companies.
A shift towards open-source models could nevertheless give Apple greater flexibility as it attempts to strengthen its position in generative AI without bearing all the costs and development risks associated with building frontier models internally.
Foldable iPhone could provide new growth catalyst
Another central factor behind Redburn’s upgrade is Apple’s anticipated launch of a foldable iPhone, expected in September.
The broker forecasts sales of 14 million iPhone Ultra units during fiscal 2027 and estimates that only 4 million of those purchases will replace demand that would otherwise have gone towards conventional iPhones.
Redburn expects the new device to be priced at $2,199, representing an 83% premium to the iPhone 17 Pro Max.
The analysts argued that Apple’s history suggests it could significantly expand the foldable smartphone category rather than simply take market share from existing manufacturers.
They pointed to AirPods and Apple Watch as examples, with Apple capturing between 65% and 75% of incremental unit growth in their respective product categories following launch.
Redburn expects the foldable model to increase average iPhone selling prices by 11% by June 2027.
Revenue and earnings estimates move above consensus
The broker’s confidence in the foldable strategy has resulted in significantly more optimistic forecasts for Apple’s core smartphone business.
Redburn’s iPhone revenue projections are between 3% and 14% above consensus estimates across fiscal 2026 to fiscal 2030.
Its overall earnings forecasts are also increasingly bullish over the longer term, reaching between 8% and 18% above consensus by fiscal 2030.
The combination of higher device prices, incremental unit demand and a potentially more flexible AI strategy forms the central argument behind the new $400 price target.
Production and consumer adoption remain key risks
Redburn nevertheless identified several risks that could challenge its investment thesis.
Potential delays to production of the foldable iPhone are one concern, while technical difficulties surrounding display “crease visibility” and hinge durability could complicate manufacturing or affect consumer perceptions of the device.
Apple’s continued dependence on third-party AI models also remains a strategic risk if the company is unable to establish a more independent approach to artificial intelligence.
Consumer demand for foldable smartphones represents another uncertainty. The analysts noted that a 2023 CNET survey found 64% of consumers did not want a foldable handset.
More recent research offers a considerably more encouraging picture for Apple, however. A Forbes survey found that 61% of consumers “would gain immediate confidence” in foldable smartphones if Apple entered the category.
