Morgan Stanley has turned more cautious on Apple (NASDAQ: AAPL) following the tech giant’s latest earnings report, lowering its price target despite the company beating Wall Street expectations.
Shares of Apple tumbled 7.35% on July 31, even after the company posted adjusted earnings of $1.91 per share, topping consensus estimates of $1.89 per share.
Revenue came in at $109.42 billion for the fiscal third quarter, ahead of the $108.65 billion Wall Street had expected heading into the print.
iPhone revenue, Apple’s largest business segment, reached $54.25 billion, also beating analyst expectations of $53.86 billion for the period.
Despite the earnings beat, Apple issued weak guidance, citing supply chain difficulties that CEO Tim Cook recently described as a “hundred-year flood” in memory supply.
“We’re seeing some very significant constraints currently with limited flexibility in the supply chain to remedy it,” Cook said on the earnings call, underscoring the severity of the situation.
Morgan Stanley maintained its Overweight rating on the stock but cut its price target to $360 from $364, while also retaining a “Cautious” industry view.
The bank identified Apple’s Services business as the “biggest blemish” from the quarter, with revenue growing 12% year over year and missing Wall Street estimates.
September-quarter guidance implies Services growth will slow to below 10%, hurt by foreign exchange headwinds, weaker mobile gaming activity, and softer App Store trends in certain markets.
Morgan Stanley noted that Apple made an unusually direct acknowledgment of App Store headwinds, including changes to business models in some countries, which added to investor unease.
Rising memory costs are putting greater pressure on margins ahead of expected iPhone price increases later this year, with analysts questioning whether a broader margin recovery could be delayed into fiscal 2027.
The bank wrote that it would “expect some softness until new catalysts are nearer,” pointing to Apple’s September iPhone launch, the upcoming Siri AI rollout, and pending regulatory approvals for its Intel acquisition in Europe and China.
Morgan Stanley remained broadly constructive on the longer-term Apple story, noting that the installed base continues to grow to all-time highs and free cash flow is growing 52% year over year year-to-date.
“Big picture, there remains a lot to be constructive on with the Apple story — 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,” the analysts wrote.
Investors will be watching closely whether Apple’s anticipated iPhone price increases and a rumored foldable iPhone launch can offset the near-term supply and margin pressures weighing on sentiment.
