Morgan Stanley turns more optimistic on Apple as iPhone outlook improves
News Summary
Morgan Stanley has issued a renewed optimistic outlook for Apple Inc., primarily due to stronger-than-expected iPhone sales in China and channel inventory falling below normalized levels, creating a restocking opportunity. Analyst Erik Woodring noted that “the Apple story could be turning the corner,” driven by higher iPhone build forecasts and the potential for valuation expansion. According to Morgan Stanley’s China team, iPhone sales in June outperformed expectations, leading to an 8% increase in the September iPhone build estimate. This improvement is concentrated entirely on iPhone 16 and iPhone 16 Pro Max models, with an additional 2 million units each. While the September quarter outlook already factors in these improvements, the analyst suggests it could signal further upside in the typically volatile December quarter. Delays persist for Apple Intelligence AI features, but the company is expected to reveal more AI details with next month's new iPhone launch. Woodring also highlighted pricing as an “underappreciated lever” for Apple's products and services. Despite Apple shares falling over 7% in 2025 and many institutional investors remaining underweight, Morgan Stanley believes peak tariff risk has passed, regulatory obstacles are less daunting than feared, and Apple trades in line with its trailing five-year average. The analyst concluded that Apple is “one potential AI partnership away from breaking out.”
Background
Morgan Stanley upgraded its outlook for Apple Inc., primarily citing stronger-than-expected iPhone demand in China and increased restocking opportunities. Despite delays in the rollout of Apple's AI features (Apple Intelligence), analysts believe new iPhones and pricing power could drive the company's growth. Apple shares have fallen over 7% in 2025, with analysts seeing an AI partnership as a key catalyst for a breakout in the stock. Analysts note that current market expectations for Apple remain relatively muted, with many institutional investors underweighting the stock compared to other megacap technology peers. This upgraded outlook signals a shift in sentiment among some Wall Street analysts, who believe policy clarity, product cycles, and improving demand dynamics are giving Apple fresh momentum heading into the second half of the year.
In-Depth AI Insights
Beyond immediate iPhone demand, what underlying strategic shifts or market dynamics are truly driving Morgan Stanley's increased optimism, especially given Apple's AI delays? - Morgan Stanley's optimism extends beyond mere product cycles, stemming from deeper structural improvements. The key lies in the effective de-stocking of iPhone channel inventory in China, which not only alleviates short-term sales pressure but, more importantly, creates healthy restocking opportunities and potential for a 'supercycle' demand for the upcoming iPhone 16/17 series. - Furthermore, the report highlights Apple's underappreciated pricing power, indicating the company's inherent ability to boost revenue and margins without necessarily massive unit growth. This strong pricing strategy provides crucial revenue resilience while its AI capabilities are still being refined. - The deeper bullish catalyst isn't the product itself, but a potential AI strategic partnership. This suggests Morgan Stanley believes Apple could rapidly address its AI shortcomings through external collaboration rather than solely internal R&D, thereby quickly reshaping its narrative in the AI era and potentially triggering a valuation re-rating. Given President Trump's re-election, how might Morgan Stanley's comment that "peak tariff risk has passed" influence Apple's long-term strategy and supply chain resilience concerning China? - President Trump's re-election typically implies a continuation of "America First" policies, but the statement "peak tariff risk has passed" might signal a more predictable or stabilizing trade strategy from his administration towards specific industries like tech, rather than continuous escalation. This could offer Apple greater operational certainty. - Apple's deep ties to China for both production and sales mean any tariff or supply chain disruption significantly impacts its global performance. If tariff pressures indeed ease, Apple can more confidently optimize its supply chain within China and market penetration, reducing costs associated with forced diversification. This doesn't imply a complete exit from China but allows for more efficient iteration on its existing base. - This signal could also prompt Apple to adopt a more nuanced strategy for supply chain resilience: maintaining core manufacturing capabilities in China while making selective, incremental investments in other regions (e.g., India, Vietnam) to mitigate future unpredictability, rather than pursuing large-scale, disruptive relocations. What are the deeper strategic implications for Apple's long-term competitive advantage and investor confidence regarding its delayed AI rollout? - Apple's caution and delays in AI, while seemingly a disadvantage, could strategically be a 'fast-follower' approach in the long run. By observing competitors' AI product iterations and market feedback, Apple can more precisely optimize its technological roadmap and user experience, avoiding early missteps and potentially coming out ahead with a more refined, 'Apple-fied' AI experience. - This delay might also compel Apple to accelerate its pursuit of external AI partnerships, which Morgan Stanley emphasizes as a 'breakout catalyst.' Deep collaboration with leading AI companies like OpenAI or Google could not only fill its internal AI technology gaps but also rapidly integrate cutting-edge AI capabilities into its vast ecosystem, preventing it from falling behind in the crucial tech race. - For investors, initial delays might cause stock pressure, but if Apple can deliver a truly transformative AI product through external partnerships or its hallmark 'polished innovation,' the wait could be worthwhile. The key lies in managing market expectations and clearly outlining its future AI strategy during new product launches like the iPhone 17.