Morgan Stanley Lowers Apple Price Target to $360

Morgan Stanley analyst Erik Woodring lowered the price target on Apple (NASDAQ: AAPL) to $360 (from $364) while maintaining an Overweight rating.

“History shows that Apple sees the strongest estimate revisions, multiple expansion, and stock outperformance when all 3 key parts of the Apple story are working in unison – iPhone, Services, and gross margins.

Tonight’s September quarter guide implies two of those factors are facing more serious headwinds than expected – (1) Services growth is decelerating to <10% Y/Y for the first time since June ’23 quarter – below our below-Consensus forecast – primarily due to FX headwinds and a slower mobile gaming market, while (2) gross margins ex-tariff refunds were guided to 46.5% at the midpoint (1 pt below Street, 30bps below MSe), with memory costs accounting for >100% of the Q/Q compression in gross margins. iPhone is also seeing headwinds in the September quarter via component constraints, but will still grow mid-teens% Y/Y, and thus we wouldn’t be overly critical of iPhone performance / it remains the strongest part of this story.

Big picture, there remains a lot to be constructive on with the Apple story – the installed base continues to grow to all-time highs, FCF is growing 52% Y/Y YTD, the cadence of product launches is accelerating, new form factors are on the come, Siri AI is launching in a few months, and a new CEO is stepping into the helm.

Yet at the same time, Apple’s leverage over the supply chain appears to be in question, and it’s not clear that AI is serving as any measurable tailwind to Products or Services, with its future monetization impact still uncertain.

In fact, one could argue App Store softness might even be a result of AI re-prioritizing customer time.

Collectively, we believe this means that until Apple reaches its next important catalyst – the iPhone 18/Foldable launch (with pricing disclosures), the Siri AI launch, any international regulatory approvals – or we see an inflection in supply/demand, shares are likely to remain soft as the market sorts through/looks to regain confidence that estimates will move higher again”

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