Morgan Stanley recalibrates its view on Apple stock ahead of earnings

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Morgan Stanley recalibrates its view on Apple stock ahead of earnings originally appeared on TheStreet.
Apple's () financial engine fires on more than just iPhones; of late, we've seen one high-margin segment punching above its weight.
As it heads into its next earnings report, that trend could matter much more than expected.
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Also, if you follow the models, one firm's quiet recalibration might be the telltale sign of what's to come for Apple stock.
Sometimes, it's the side businesses that steal the show.
Apple's record quarter comes with a side of caution
Apple opened fiscal 2025 with a couple of powerful beats, which surprisingly attracted a muted response from Wall Street.
In the December quarter (Q1 2025), Apple posted all-time high sales of $124.3 billion, up 4% from a year ago, while delivering a $2.40 diluted EPS, representing a 10% jump.
The March quarter (Q2 2025) then kept up that momentum, with $95.4 billion in sales, representing 5% growth year-over-year and a record $1.65 EPS for the period.
The iPhone 16 was a smashing success, pushing iPhone revenue up 2% to $46.8 billion. Macs and iPads surprised, climbing 7% and 15%, respectively.However, it was Apple's Services segment that stole the show again, which is up 12% to $26.6 billion, thanks to App Store strength, Apple Music, and cloud offerings. Gross margins held near firm 47%, giving Apple a healthy cushion.
Still, Tim Cook isn't ignoring the risks.
He said that potential U.S. tariffs could shave up to $900 million off quarterly profit. In response, Apple's been ramping up iPhone assembly in India and Vietnam to efficiently spread out its supply chain risk.
It's also embracing AI with open arms.
Over the holidays, it rolled out 'Apple Intelligence,' layering in generative features into iOS, such as smarter Siri prompts and AI-edited photos.
Nonetheless, a pending antitrust ruling could force App Store changes that significantly impact in-app revenues.
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That said, in reassuring its investors, Apple announced a whopping $100 billion buyback and raised its dividend to 26 cents per share.
Nevertheless, the stock is still down about 15% year to date.
Apple stock gets a boost from App Store surprise
Ahead of its Q3 earnings report in a few days, Apple just got a jolt from a familiar cash cow in the App Store.
According to Morgan Stanley, App Store sales in the U.S. surged 12.5% year-over-year through the first 20 days of July. That's a healthy increase from June's 11.5% gain, and shows no signs of slowing at this point.
What's remarkable is that it comes even after the recent Epic Games v. Apple ruling, which many feared could dent monetization.
Globally, App Store performance is just as encouraging. Revenue is up 7.1% year-over-year in China and 21% across other international markets, despite a relatively small 1.9% dip in Japan
If the quarter ended today, Morgan Stanley forecasts App Store revenue would be pacing at 12.6% growth, significantly more than the previous 11%.
That difference matters.
Based on current trends, Morgan Stanley forecasts $160 million in potential upside to Apple's September-quarter Services segment.
Additionally, Morgan Stanley analyst Erik Woodring says the monetization fears over Apple in terms of its apps business, post-lawsuit, are mostly overblown.
'After more than two months since the Apple vs. Epic injunction, we still have not seen meaningful impact on Apple's ability to monetize the U.S. App Store, despite the link-out risk,' he wrote.
With investors laser-focused on Apple's high-margin Services revenue, the App Store's resilience could be the start of something big for the tech giant.
It also underscores the company's growing dependence on recurring digital income at a time when iPhone upgrade cycles remain stretched.
Nonetheless, Apple is set to report Q3 results next week, and Wall Street expects earnings per share of $1.43 on $88.89 billion in revenue.
If App Store momentum holds, these estimates will likely appear much more conservative.Morgan Stanley recalibrates its view on Apple stock ahead of earnings first appeared on TheStreet on Jul 22, 2025
This story was originally reported by TheStreet on Jul 22, 2025, where it first appeared.