As Apple prepares to release its third-quarter earnings, Wall Street analysts are closely monitoring the tech giant's performance against a backdrop of macroeconomic uncertainty and persistent global trade tensions. Morgan Stanley has painted a cautiously optimistic outlook, projecting nearly 6% year-over-year revenue growth while dissecting key drivers including iPhone sales, services performance, and the company's long-term artificial intelligence strategy.
Resilient Growth Despite Tariff Headwinds
Morgan Stanley analysts suggest Apple may outperform market expectations for the quarter ending June 30, despite tariff-related uncertainties. The firm raised its revenue forecast to $90.7 billion, representing 5.8% annual growth, citing product line stability and favorable currency exchange factors.
The flagship iPhone remains central to Apple's revenue story, with Morgan Stanley upgrading both shipment volume and average selling price (ASP) projections. Meanwhile, iPad and Mac sales are expected to grow 9% and 1% respectively year-over-year.
Services Business Maintains Double-Digit Growth
While Apple's lack of guidance for its services division in Q2 raised investor concerns - compounded by April's App Store regulatory challenges - Morgan Stanley anticipates minimal Q3 impact. The firm revised services growth expectations upward to 11.6%, marking an eighth consecutive quarter of double-digit expansion. App Store revenue alone is projected to match this growth rate.
AI Strategy: The Long Game
Morgan Stanley advises against expecting near-term breakthroughs from Apple's AI initiatives. The Apple Intelligence system remains in development, with the company focusing on integrating Siri with locally-hosted large language models (LLMs) rather than competing directly with Google's search-centric AI. The firm notes Apple may supplement this with third-party white-label solutions.
"The market may be underestimating Apple's AI potential precisely because of its measured approach," the report states, contrasting Apple's strategy with more aggressive competitors. Significant Apple Intelligence updates aren't expected before 2026, with China-specific developments likely remaining undisclosed for now.
Q4 Outlook: Bottoming Out With Upside
For the September quarter, Morgan Stanley predicts growth will "bottom out" while staying positive, raising revenue estimates from $95.7 billion to $96.5 billion. Earnings per share projections increased from $1.56 to $1.61, reflecting dollar strength, improved Mac/iPad production, and sustained services momentum.
The report lifts gross margin expectations to 46.1% (from 45.3%), accounting for approximately $1.5 billion in tariff expenses deemed "manageable" within Apple's financial framework.
Investment Thesis: Staying Bullish
Morgan Stanley maintains its "Overweight" rating with a $235 price target, emphasizing confidence in Apple's long-term growth across hardware, services, and strategic AI integration.
Strategic Differentiation in AI
Apple's AI approach emphasizes privacy-focused local processing rather than cloud-dependent solutions. This delivers faster response times, offline functionality, and enhanced data security - advantages that could redefine Siri's capabilities while creating a framework for third-party AI partnerships.
As Apple navigates competitive and regulatory complexities in China, Morgan Stanley expects limited near-term disclosures about AI developments in this critical market.
Risk Factors
Investors should note potential macroeconomic pressures, competitive threats, regulatory changes, and supply chain vulnerabilities that could impact Apple's trajectory.