Morgan Stanley anticipates Apple will outpace its own revenue guidance when it releases fiscal first-quarter results on Thursday, with much of the upside tied to stronger-than-expected iPhone sales.
Analyst Erik Woodring told clients that revenue growth for the December quarter "could exceed mgmt's 10-12% Y/Y guide," attributing the potential overperformance mainly to demand for the iPhone 17. He also said the March-quarter revenue outlook "should exceed Street at +10% Y/Y, thanks to iPhone 17 strength."
Despite the likely revenue surprise and the potential for management to raise targets, Morgan Stanley warned that cost dynamics could limit earnings momentum. The bank noted that consensus expectations for operating expenses appear too low - $17.2 billion consensus versus an $18.2 billion Morgan Stanley estimate - which would reduce EPS flow-through from any topline beat. In addition, gross margin pressure associated with memory costs is expected to continue into the June quarter.
Given these mixed forces, Morgan Stanley expects Apple shares to trade "sideways to modestly lower" following the earnings release. The firm cited a tougher first-half setup and what it described as historically weak seasonal performance in the March quarter as reasons for muted near-term price action.
Nonetheless, the bank retained an Overweight rating on the shares and kept its $315 price target intact, pointing to a brighter second half of 2026. The analyst highlighted a sequence of potential catalysts later in the year - including a Siri re-launch, the introduction of a Foldable iPhone, and a 2nm iPhone 18 launch - that could support outperformance in the back half of 2026.
Morgan Stanley also observed that Apple is trading near "5-year trough relative valuations," noting that the shares are priced at 25 times the firm's fiscal 2027 earnings estimate.
Despite the more immediate concern over costs, the bank remained constructive on Apple's longer-term growth trajectory.
Separately in the report, the write-up referenced a data-driven stock selection tool that evaluates AAPL and other companies using over 100 financial metrics and highlights past winners such as Super Micro Computer (+185%) and AppLovin (+157%). The note mentioned the tool's New Years sale offering 55% off.
Context and implications
Morgan Stanley's view combines expectations of material iPhone-led revenue strength near term with caution about operating expense and margin headwinds that could blunt earnings gains. The bank's stance suggests a split outlook: near-term revenue upside but limited EPS leverage until cost pressures ease and later-year product catalysts materialize.