Morgan Stanley believes the market is currently underappreciating Apple's (NASDAQ:AAPL) Edge AI initiatives, adding that they see catalysts ahead for the stock.
The firm reiterated its Overweight rating and $220 price target on the stock, saying they see a positively skewed risk-reward at current levels.
The investment bank believes the "upcoming Gen AI announcements can more than offset other, commonly cited, investor concerns (China demand, DOJ lawsuit) to catalyze outperformance."
While Morgan Stanley acknowledges a reversal in negative sentiment won't happen overnight due to "lingering China demand concerns and the recently filed DOJ lawsuit," they believe Apple's early June developer conference and mid-September iPhone 16 launch are important catalysts.
These catalysts "can improve investor sentiment and reinvigorate the bull case, as compelling new AI features embedded into the iPhone 16 can catalyze an iPhone upgrade cycle - historically a key driver of outperformance - and accelerate Product/Services spend per user as Apple becomes the leader in Edge AI, which we see as a tailwind to Apple's earnings power and multiple," said the bank.