Morgan Stanley boosts AAPL target to $220 over AI and Vision Pro

Posted:
in General Discussion edited December 2023

Investment analysts at Morgan Stanley have raised their target price for Apple based on the outlook for Services, iPhone 15 gross margins, and high consumer interest in Vision Pro.

An Apple Store logo
An Apple Store logo



Morgan Stanley's last target price change was a $5 drop from $215 to to $210 in October, where its analysts cited supply issues with the iPhone 15 Pro.

Now in a new note to investors seen by AppleInsider, the investment bank says that its latest "supply chain checks [are] showing relative stability in iPhone builds."

"We are turning more positive on AAPL shares as near-term risks are quelled & attention shifts to what could drive a recovery in fundamentals -- Services, GMs and Edge AI," write the analysts. "With this backdrop, we address the top investor debates into year-end. PT moves to $220 as we M2M our valuation; Reiterate OW [overweight]."

Morgan Stanley believes that "well known near-term iPhone unit challenges in China," are being offset by "strength in Services and gross margins." Another reason for being "incrementally more positive" is the $3 trillion market cap, and how "year to date, Apple has outperformed the S&P 500 by 30 points."

Overall, the analysts say "we are turning more positive on AAPL shares as diminishing short-term risks refocus attention on what could drive a recovery in fundamentals over the next 12-18 months."

The key fundamentals are Apple's Services, its gross margins, and expectations over the company's AI or "Edge AI" position.

"We believe Apple is well-positioned to be an AI beneficiary via its ability to lead the market on Edge AI," write the analysts, "with its primary monetization mechanisms being 1) Hardware share gains/replacement cycle contraction, 2) new avenues for traffic acquisition costs (TAC), [and] 3) better Services monetization, 4) App Store purchases, and/or a 5) premium Siri subscription service."

"In short, we believe the need for more powerful hardware to run AI workloads at the edge could drive an iPhone upgrade cycle," continues the note, "with every 0.2 year contraction in replacement cycles driving 5-8% upside to our iPhone unit/revenue forecast."

Morgan Stanley says it has also found "very strong early consumer purchasing intentions" for the Apple Vision Pro.

Preferred headset suppliers. Survey conducted before Vision Pro was announced. Source: Harris 2021 va Morgan Stanley
Preferred headset suppliers. Survey conducted before Vision Pro was announced. Source: Harris 2021 va Morgan Stanley



"Our 2023 US China Smartphone survey showed... 33% of US iPhone owners and 74% of Chinese iPhone owners likely to purchase the Vision Pro within the first 12 months of release at the $3,500 price point," says the note.

Despite this, the analysts expect that the Vision Pro is going to be more of a long term success for Apple. That's because "50%
of US iPhone owners and 90% of China iPhone owners not planning to purchase a Vision Pro [say they are] likely to consider it at a cheaper price, on average between $1-2K."

Morgan Stanley's projections see "Apple's AR/VR headset [ramping] to $8 billion of revenue by year 3," which it says "would rank the product ramp just below AirPods, but above the Apple Watch."

Risks to Apple's profitability



The analysts do see several potential issues for Apple that are of concern to investors. However, in each case, Morgan Stanley believes Apple will not be greatly affected by them.

For instance, there are the impending EU laws that will force Apple to allow third-party app stores for the first time.

Apps would now have to be 35% cheaper before most users would consider buying outside the App Store. (Source: Morgan Stanley)
Apps would now have to be 35% cheaper before most users would consider buying outside the App Store. (Source: Morgan Stanley)



Given changes to Apple's App Store risk factor language in its FY23 10K, we believe changes to comply with the EU DMA are imminent (thought still not yet finalized) and will likely come in the form of 3rd party app stores being allowed on iOS devices in the EU," say the analysts. "However, EU is just ~7% of App Store spend, and our survey work shows Apple remains well-positioned to compete, with consumers overwhelmingly preferring App Store's unmatched privacy, ease of use, and seamless OS integration."

Then there's the issue of the Department of Justice's case against Google. That did not encompass Apple, yet it's Google's deals with Apple that has come under most scrutiny and is perhaps under most threat.

"We still believe regulation/legislation [following DOJ vs Google] is a key risk for Apple, and see 5-8% downside to our FY26 EPS in the event of an adverse ruling in this case," says Morgan Stanley.

"However," it continues, "the recent pushout of the timeline for the DOJ vs. GOOGL trial, which is unlikely to reach a preliminary ruling until late 2024 (vs. prior expectations for as early as this month), followed by a lengthy appeals process and potentially further trials after that - which could put the date of conclusion into 2026 or later - means a key near-term overhang to AAPL shares is likely to be significant discounted by the market."

Declining sales



The one area where Morgan Stanley does not appear to be positive about Apple's future, is over the iPhone. There are issues both around falling demand in China, and a related chance of Apple cutting back on its orders for the iPhone 15 range.

Acknowledging this, the analysts note that "iPhone retention rates [are] at the lowest levels since 2013," but its supply chain checks "suggest limited risk of near-term iPhone production cuts."

Apple regained its $3 trillion market cap in December 2023, having first reached it in January 2022, then again in June 2023. In each case, the company shortly fell back below $3 trillion, and in each case that was believed to be because of investor uncertainty.

Read on AppleInsider

Bart Y

Comments

  • Reply 1 of 7
    with a 3500 starting price, i dont think so, maybe in 2025 or 2026, besides they dont have an AI, comes from google and others  :D 
    edited December 2023 williamlondon
  • Reply 2 of 7
    mpantonempantone Posts: 2,022member
    miiwtwo said:
    with a 3500 starting price, i dont think so, maybe in 2025 or 2026, besides they dont have an AI, comes from google and others  :D 
    Which is why the target price increased from $210 to $220, less than a 5% increase.

    As for AI, Apple has shipped hardware with it (or more accurately machine learning) since 2017, starting with the A11 SoC in the iPhone X and iPhone 8 series, in the form of the Neural Engine.

    There isn't just one path entering the massive machine learning realm. Apple is unsurprisingly taking their own approach to it, different than how Nvidia has entered the machine learning universe.

    One thing I guarantee you, Apple isn't going to be shipping their own AI accelerator cards to third parties to shove into datacenter racks. Apple will keep their machine learning hardware for their customers to provide a competitive advantage in the same way they don't sell A-series and M-series chips to outsiders.

    It is likely that Apple will release a cheaper sibling to Vision Pro in the future if the platform is viable and shows good growth potential. Remember that the original iPhone (2007) released at a carrier subsidized price of $600. That's in 2007 dollars. But eventually prices came down with future models released that addressed the lower end of the market (iPhone SE, the minis, 5C, etc.).

    Without a doubt there are hundreds of Vision prototypes sitting in labs in Cupertino, some of which may see the light of day as a future retail product. Undoubtedly Apple's senior management team understands that not everyone can fork out $3500 for an HMD, especially when the Meta Quest 3 is $500 and the previous generation Quest 2 is $300. Again, somewhere in a lab in Cupertino is a room full of competitors' products. I wouldn't be surprised if the retail price is taped onto the unit as a reminder to everyone.
    edited December 2023 williamlondonBart Y
  • Reply 3 of 7
    mpantone said:
    miiwtwo said:
    with a 3500 starting price, i dont think so, maybe in 2025 or 2026, besides they dont have an AI, comes from google and others  :D 
    Which is why the target price increased from $210 to $220, less than a 5% increase.

    As for AI, Apple has shipped hardware with it (or more accurately machine learning) since 2017, starting with the A11 SoC in the iPhone X and iPhone 8 series, in the form of the Neural Engine.

    There isn't just one path entering the massive machine learning realm. Apple is unsurprisingly taking their own approach to it, different than how Nvidia has entered the machine learning universe.

    One thing I guarantee you, Apple isn't going to be shipping their own AI accelerator cards to third parties to shove into datacenter racks. Apple will keep their machine learning hardware for their customers to provide a competitive advantage in the same way they don't sell A-series and M-series chips to outsiders.

    It is likely that Apple will release a cheaper sibling to Vision Pro in the future if the platform is viable and shows good growth potential. Remember that the original iPhone (2007) released at a carrier subsidized price of $600. That's in 2007 dollars. But eventually prices came down with future models released that addressed the lower end of the market (iPhone SE, the minis, 5C, etc.).

    Without a doubt there are hundreds of Vision prototypes sitting in labs in Cupertino, some of which may see the light of day as a future retail product. Undoubtedly Apple's senior management team understands that not everyone can fork out $3500 for an HMD, especially when the Meta Quest 3 is $500 and the previous generation Quest 2 is $300. Again, somewhere in a lab in Cupertino is a room full of competitors' products. I wouldn't be surprised if the retail price is taped onto the unit as a reminder to everyone.
    so you need to release an expensive product to know if will works mmm im not sure sir, press says than meta loses money with the quest 3 so ...
    williamlondon
  • Reply 4 of 7
    danoxdanox Posts: 2,678member
    mpantone said:
    miiwtwo said:
    with a 3500 starting price, i dont think so, maybe in 2025 or 2026, besides they dont have an AI, comes from google and others  :D 
    Which is why the target price increased from $210 to $220, less than a 5% increase.

    As for AI, Apple has shipped hardware with it (or more accurately machine learning) since 2017, starting with the A11 SoC in the iPhone X and iPhone 8 series, in the form of the Neural Engine.

    There isn't just one path entering the massive machine learning realm. Apple is unsurprisingly taking their own approach to it, different than how Nvidia has entered the machine learning universe.

    One thing I guarantee you, Apple isn't going to be shipping their own AI accelerator cards to third parties to shove into datacenter racks. Apple will keep their machine learning hardware for their customers to provide a competitive advantage in the same way they don't sell A-series and M-series chips to outsiders.

    It is likely that Apple will release a cheaper sibling to Vision Pro in the future if the platform is viable and shows good growth potential. Remember that the original iPhone (2007) released at a carrier subsidized price of $600. That's in 2007 dollars. But eventually prices came down with future models released that addressed the lower end of the market (iPhone SE, the minis, 5C, etc.).

    Without a doubt there are hundreds of Vision prototypes sitting in labs in Cupertino, some of which may see the light of day as a future retail product. Undoubtedly Apple's senior management team understands that not everyone can fork out $3500 for an HMD, especially when the Meta Quest 3 is $500 and the previous generation Quest 2 is $300. Again, somewhere in a lab in Cupertino is a room full of competitors' products. I wouldn't be surprised if the retail price is taped onto the unit as a reminder to everyone.

    Apple has AI secret weapons up their sleeves M1, M2 and M3 UMA MacBook Pro's and M1 (128 gig) ,M2 (192 gig) and M3 (256 gig) Studio Ultra's guess what many big brains have realized they are fast but more importantly they have all that beautiful UMA Memory that likes AI ("because inference's main bottleneck is memory bandwidth, not compute power"). 

    Apple has 
    coincidently? :smile:  a great computer for AI development the Mac Studio M2 192 gig Ultra, and coming up mid next year the Mac Studio M3 Ultra 256 gig of UMA memory. Very smart developers are starting to notice the possibilities.....

    https://blog.gopenai.com/how-to-deploy-llama-2-as-api-on-mac-studio-m2-ultra-and-enable-remote-api-access-7c4e6423b2dd

    https://creativestrategies.com/apple-silicon-and-the-mac-in-the-age-of-ai/

    https://multiplatform.ai/apple-emerges-as-the-preferred-choice-for-ai-developers-in-harnessing-large-scale-open-source-llms/

    Apple should be giving all of the software support they can (to these developers on the cutting edge), Apple has the hardware and the software for AI development on your desk Mac M3 Ultra (mid year) or on the go now with a M3 MacBook laptop with 128 gigs of UMA memory and unmatched battery and power usage.

    I have feeling Apple will have a presentation of the Mac Studio M3 Ultra with 256 gig of UMA Memory at WWDC next year.

    Morgan Stanley is not far off this time. Turns out Apple UMA is the tech for these AI inference times.

    And the Apple Vision Pro with a M3? and a R1 co-processor (whose true functions are not known yet) :) I don't think Apples behind, I think they are just a little humble.
    edited December 2023 Bart Y
  • Reply 5 of 7
    mpantonempantone Posts: 2,022member
    miiwtwo said:
    mpantone said:
    miiwtwo said:
    with a 3500 starting price, i dont think so, maybe in 2025 or 2026, besides they dont have an AI, comes from google and others  :D 
    Which is why the target price increased from $210 to $220, less than a 5% increase.

    As for AI, Apple has shipped hardware with it (or more accurately machine learning) since 2017, starting with the A11 SoC in the iPhone X and iPhone 8 series, in the form of the Neural Engine.

    There isn't just one path entering the massive machine learning realm. Apple is unsurprisingly taking their own approach to it, different than how Nvidia has entered the machine learning universe.

    One thing I guarantee you, Apple isn't going to be shipping their own AI accelerator cards to third parties to shove into datacenter racks. Apple will keep their machine learning hardware for their customers to provide a competitive advantage in the same way they don't sell A-series and M-series chips to outsiders.

    It is likely that Apple will release a cheaper sibling to Vision Pro in the future if the platform is viable and shows good growth potential. Remember that the original iPhone (2007) released at a carrier subsidized price of $600. That's in 2007 dollars. But eventually prices came down with future models released that addressed the lower end of the market (iPhone SE, the minis, 5C, etc.).

    Without a doubt there are hundreds of Vision prototypes sitting in labs in Cupertino, some of which may see the light of day as a future retail product. Undoubtedly Apple's senior management team understands that not everyone can fork out $3500 for an HMD, especially when the Meta Quest 3 is $500 and the previous generation Quest 2 is $300. Again, somewhere in a lab in Cupertino is a room full of competitors' products. I wouldn't be surprised if the retail price is taped onto the unit as a reminder to everyone.
    so you need to release an expensive product to know if will works mmm im not sure sir, press says than meta loses money with the quest 3 so ...
    Apple has a long history of jumping into any given market at a premium price point.

    Don't you remember CmdrTaco (Rob Malda) of Slashdot's dismissal of the original iPod? "No wireless? Less space than a Nomad? Lame."

    Apple entered the MP3 player market with a product more expensive than the competition. They did the same with iPhones and iPads. Same with the Apple Watch. Hell, people still refer to the "Apple tax." Owned the >$1000 PC market for years and years, they still own the premium segment.

    Even the iPod shuffle ($79) -- their low end MP3 player -- competed against no-name MP3 players around the $20-25 price point. Maybe Creative had a $30 player.

    They always aim for the premium price point, walk away with most of the industry's profits because selling cheap stuff at razor thin margins doesn't turn you into a company with a $3 trillion market cap.

    VR/AR is still far from being considered a mature market.

    Apple never thinks they need to win on unit sales. They want to clean up on gross margins. Nothing new, this has been their modus operandii for well over twenty years.
    eightzerowilliamlondonbadmonkBart Y
  • Reply 6 of 7
    mpantone said:
    miiwtwo said:
    mpantone said:
    miiwtwo said:
    with a 3500 starting price, i dont think so, maybe in 2025 or 2026, besides they dont have an AI, comes from google and others  :D 
    Which is why the target price increased from $210 to $220, less than a 5% increase.

    As for AI, Apple has shipped hardware with it (or more accurately machine learning) since 2017, starting with the A11 SoC in the iPhone X and iPhone 8 series, in the form of the Neural Engine.

    There isn't just one path entering the massive machine learning realm. Apple is unsurprisingly taking their own approach to it, different than how Nvidia has entered the machine learning universe.

    One thing I guarantee you, Apple isn't going to be shipping their own AI accelerator cards to third parties to shove into datacenter racks. Apple will keep their machine learning hardware for their customers to provide a competitive advantage in the same way they don't sell A-series and M-series chips to outsiders.

    It is likely that Apple will release a cheaper sibling to Vision Pro in the future if the platform is viable and shows good growth potential. Remember that the original iPhone (2007) released at a carrier subsidized price of $600. That's in 2007 dollars. But eventually prices came down with future models released that addressed the lower end of the market (iPhone SE, the minis, 5C, etc.).

    Without a doubt there are hundreds of Vision prototypes sitting in labs in Cupertino, some of which may see the light of day as a future retail product. Undoubtedly Apple's senior management team understands that not everyone can fork out $3500 for an HMD, especially when the Meta Quest 3 is $500 and the previous generation Quest 2 is $300. Again, somewhere in a lab in Cupertino is a room full of competitors' products. I wouldn't be surprised if the retail price is taped onto the unit as a reminder to everyone.
    so you need to release an expensive product to know if will works mmm im not sure sir, press says than meta loses money with the quest 3 so ...
    Apple has a long history of jumping into any given market at a premium price point.

    Don't you remember CmdrTaco (Rob Malda) of Slashdot's dismissal of the original iPod? "No wireless? Less space than a Nomad? Lame."

    Apple entered the MP3 player market with a product more expensive than the competition. They did the same with iPhones and iPads. Same with the Apple Watch. Hell, people still refer to the "Apple tax." Owned the >$1000 PC market for years and years, they still own the premium segment.

    Even the iPod shuffle ($79) -- their low end MP3 player -- competed against no-name MP3 players around the $20-25 price point. Maybe Creative had a $30 player.

    They always aim for the premium price point, walk away with most of the industry's profits because selling cheap stuff at razor thin margins doesn't turn you into a company with a $3 trillion market cap.

    VR/AR is still far from being considered a mature market.

    Apple never thinks they need to win on unit sales. They want to clean up on gross margins. Nothing new, this has been their modus operandii for well over twenty years.
    sorry, sounds like a huge fanatic, ill keep with the TVs example, one case, the samsung's microLED, right now a thousands of dlls, in 2 o 4 years the technology will be cheaper 
    williamlondon
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