Apple remains a top pick at Morgan Stanley, new Macs adding to PC market momentum

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By Sam Boughedda

Apple (NASDAQ:AAPL) remains a top pick at Morgan Stanley, while Evercore ISI said Tuesday that new Macs are adding to the tech giant's momentum in the PC market.

In a research note, Morgan Stanley analysts told investors, looking ahead to Apple's upcoming earnings release, that a December quarter beat is now priced in, but various near-term catalysts keep Apple as the firm's top pick.

"We are 0-1% ahead of Consensus estimates in the December quarter on the back of better than expected Product shipments (primarily iPad and Mac) and slight Services outperformance," analysts said. "But with shares up 13% since bottoming Jan. 5th (vs. +5.5% for the S&P 500) we believe the Dec Q upside has largely been priced in."

"While we expect a better-than-seasonal March quarter revenue outlook (-21% Q/Q vs. T3Y pre-COVID seasonality of -31% Q/Q) given iPhone demand pushout from the Dec Q (due to production shortages), we are 1-3% below Consensus as the overall consumer electronics spending environment remains challenging. With this setup, we aren't aggressive buyers into the print. However, we'd be buyers on any post-earnings weakness."

The firm sees five tailwinds for Apple over the next six to nine months, including re-accelerating services growth, an elongated iPhone replacement cycle and pent-up demand ahead of the iPhone 15 launch, underappreciated gross margin tailwinds, and the potential launch of a hardware subscription offering.

Elsewhere, Evercore ISI analysts, who have an Outperform rating on Apple shares, said Mac performance in the Sept quarter was "particularly notable," with revenue up 25% at a time when most other PC makers are reporting steep declines.

"The significant outperformance of the M-Series chips vs. competitors has likely been a key driver of this success and Apple's advantage seems to only grow with each iteration of the M-Series," they said.

"Share gains in the enterprise market have been another tailwind for Mac as younger workers increasingly insist on receiving Macs as a work computer," the analysts added. "We are expecting Mac revenue to decline in FY23 as the broader PC market deals with a minor "hangover" effect from the strong demand over the past couple of years, but we think Apple should continue to pick up share in both the consumer and enterprise market in FY23 and beyond."