Morgan Stanley has expressed renewed optimism about Apple Inc., citing stronger-than-expected iPhone demand in China and the potential for upward estimate revisions.
In a note published on Thursday, Erik Woodring stated that the “Apple story” could be about to turn a corner due to higher iPhone forecasts and the potential for valuation growth.
Forecasts are boosted by the strong iPhone sales in China
Morgan Stanley’s China team reported that iPhone sales for the quarter ending June exceeded expectations. This led to an increase of 8% in their September iPhone estimates.
This improvement stems from stronger-than-expected iPhone sell-through, which reduced channel inventory below normalized levels and created a larger restocking opportunity.
This revised forecast includes only the iPhone 16 and iPhone 16 Pro Max models.
Woodring said that although the outlook for the third quarter has already taken into account these improvements, they could indicate more upsides in the fourth quarter — which is a time of greater volatility.
He said: “Compared to our December quarter iPhone forecast of 78,000,000, this may indicate modest iPhone shipment growth, although we will be able narrow the range when the iPhone 17 launches next month.”
AI integration still in development
Apple Intelligence’s artificial intelligence suite is also crucial to the growth of Apple.
Since their announcement in 2013, several key functions have been delayed, including the updated Siri, which has AI capabilities.
Next month the company could announce details about its next iPhone model, and this announcement may coincide with other AI-related news.
Morgan Stanley is of the opinion that future iPhone revenue and unit growth are expected to remain muted despite a number positive factors.
There are a number of factors that can be cited, including elongated cycles for replacement, pent up demand, the development of new form-factors, and structural margin tailwinds.
Woodring pointed out also that Apple hasn’t raised service prices for two years, a sign that it is still underappreciated that its pricing strategy remains a “lever” that both products and services are based on.
Position and catalysts of the market
Apple’s shares are down more than 7 percent in 2025. According to Woodring many investors still underweight Apple compared to other technology megacap peers.
Apple’s stock is also trading at a level that matches its five-year trailing average in relation to S&P 500.
Morgan Stanley believes that Apple can benefit from possible AI-related partnership, and this could be a catalyst to a stock breakout.
Woodring concludes, “Apple is just one possible AI partnership away” from a breakthrough.
Apple’s note reflects a change in attitude among Wall Street analysts as improved demand, policy clarity and product cycles give Apple a new lease of life heading into the second part of the year.
Investors can expect to see the next big update with the release of iPhone 17. This device will provide more information on demand trends as well as Apple’s AI strategies.
The post Morgan Stanley becomes more positive on Apple’s iPhone prospects may change as new information is released.
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