Apple's shares rose 2.5 percent to a record high on Monday after Morgan Stanley raised its price target on the iPhone maker's shares and designated the stock as a "top pick", citing the company's AI efforts as a boost to device sales.

In what was seen as a move to catch up with Alphabet's Google and Microsoft-backed OpenAI, the iPad maker last month unveiled Apple Intelligence, luring customers to upgrade their devices to be able to use the new technology.

Apple's shares, which have jumped nearly 20 percent this year, rose to $236.30, giving the company a market value of $3.62 trillion, the highest in the world.

Apple Intelligence is compatible with only 8 percent of iPhone and iPad devices and Apple has 1.3 billion units of smartphones currently in use by customers, Morgan Stanley analysts said, adding that the company could sell nearly 500 million iPhones over the next two years

"Apple Intelligence is a clear catalyst to boost iPhone and iPad shipments," Morgan Stanley analysts said.

The new technology is compatible with only 8 percent of iPhone and iPad devices and Apple has 1.3 billion units of smartphones currently in use by customers, the analysts said, adding that the company could sell nearly 500 million iPhones over the next two years.

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Morgan Stanley, which previously expected Apple to sell between 230 million and 235 million iPhones annually over the next two years, raised its price target on the company's shares to $273 from $216.

The stock has an average rating of "buy" with a median price target of $217, and has outperformed the S&P 500 index this year, according to LSEG data.

Industry analysts expect Samsung and Apple to lead the charge in global smartphone market recovery this year given the buzz around GenAI-enabled smartphones.

READ MORE: Apple introduces personal intelligence system across platforms

Apple sold 45.2 million smartphones globally in the three months ending June, up from 44.5 million a year earlier, but its market share fell to 15.8 percent from 16.6 percent in the same period, according to IDC data.