Morgan Stanley Lowers Apple Price Target to $360

Morgan Stanley has reduced its Apple price target to $360 from $364, citing a slowdown in Services growth and higher memory costs that are pressuring the company’s near-term earnings outlook [1]. While the firm maintains an Overweight rating, the adjustment reflects concerns that two of the three primary pillars supporting the stock—Services and gross margins—are under pressure, even as iPhone demand remains robust [1].

Margin and Services Headwinds

Apple’s Services business, a key driver of profitability, generated $30.7 billion in the latest quarter, representing a 12% increase from 2025 [1]. However, this growth rate fell short of the 14.6% consensus forecast, and Morgan Stanley expects the figure to dip below 10% in the September quarter—the first time it has done so since the June 2023 quarter [1]. The firm attributed this deceleration to a combination of foreign exchange impacts, weaker App Store performance, and broader shifts in consumer engagement [1]. Gross margins for the segment also contracted to 75.6% in the June quarter, down from 76.7% in the March quarter [1].

Simultaneously, Apple faces a margin squeeze from rising memory costs. The company provided guidance for a September-quarter gross margin between 47% and 48%, but Morgan Stanley estimates an underlying midpoint of 46.5% after accounting for tariff refunds [1]. This estimate sits 1.5 percentage points lower than the June-quarter margin, a deviation from the historical trend where margins typically remain flat or expand during this seasonal transition [1]. Management confirmed that memory costs are the primary driver of this sequential decline, noting that savings in other areas were insufficient to offset the expense [1].

Supply Constraints and AI Outlook

Despite these financial pressures, Apple’s hardware demand remains a bright spot. The company reported a June-quarter record of $54.3 billion in iPhone revenue, with Mac revenue climbing 29% [1]. However, supply chain constraints for advanced 3-nanometer chips are limiting the company's ability to fully capitalize on this demand [1]. Morgan Stanley noted that channel inventory remains lean, and while Apple has not reduced production plans for the second half of 2026, the company’s supply chain lacks the flexibility to quickly respond to demand that is currently exceeding earlier forecasts [1].

The market remains divided on the immediate impact of Apple’s artificial intelligence strategy. While Morgan Stanley views the roadmap as a step in the right direction, the firm has yet to see a measurable boost in product demand or Services revenue directly attributable to AI [1]. With Siri AI and other features facing rollout limitations in regions like the European Union and China—which account for roughly 35% of trailing 12-month iPhone shipments—the path to AI-driven revenue growth remains a long-term development process rather than an immediate catalyst [3].

What to watch

• September Quarter Guidance: Monitor whether the projected mid-teens year-over-year iPhone revenue growth holds despite component constraints [1].
• Hardware Launches: Watch for the release of the iPhone 18 lineup and the potential debut of a foldable iPhone in mid-September, which could signal whether new hardware can drive a sustained upgrade cycle [3].
• AI Rollout: Track the fall 2026 relaunch of Apple Intelligence and Siri AI, specifically regarding how regional availability and developer integration impact adoption rates [3].

The central question for investors is whether iPhone price increases and potential new hardware can offset memory inflation and restore margin growth by fiscal 2027 [1]. Until then, the stock may remain under pressure as the market waits for clearer evidence that AI and new product cycles can overcome current macroeconomic and supply-side hurdles [1].