Morgan Stanley hikes AAPL target to $190, because 'Reality Pro' will be a $20 billion platform

Investment firm Morgan Stanley has raised its Apple price target to $190 on the expectation it will launch a category-defining AR and VR headset — and in doing so, dramatically expand the market.

Ahead of Apple's WWDC announcements on June 5, 2023, Morgan Stanley says it is now including estimates of Apple AR headsets in its overall prediction model for the company. As a consequence, its expectations for the headset means that it has increased its target price from $185 to $190.

"Apple is set to unveil its first new hardware category since 2016 — the much-anticipated 'Reality Pro' AR/VR headset — at WWDC 2023," wrote analysts in a note to investors seen by AppleInsider. "Our supply chain checks tell us Reality Pro general availability will likely come in the Dec '23 quarter, and that builds will ramp from 300-500k in CY23, to 3-4M by CY25."

"However, we assume a more conservative shipment ramp," the note continues, "with Apple reaching 3.4M shipments by 2026 (i.e. 1 year later than the current build forecast), implying a revenue ramp from $2.6B in FY24 to $8B in FY26, in-between the post-launch ramp of Apple Watch and AirPods."

Morgan Stanley analysts expect Apple's headset to have a significant impact on growing the market for such devices. Just as it did with the iPhone, Apple is expected to increase what's called the Total Addressable Market (TAM), or the number of buyers considering headsets.

Morgan Stanley predicts that Apple's headset will do better than the Apple Watch

"Longer-term, we anticipate the combination of technological improvements, new use cases, and lower price points can drive the AR/VR headset TAM to $100B by 2030, and over $500B by 2037," say the analysts, "implying AR/VR could become the next major ($20B+) standalone compute platform for Apple."

This growth prediction is based in part on how "Apple has historically driven TAM expansion in new markets it enters." However, it's also based on the analysts' "checks over the last two years" which "show sharp increases in AR/VR venture capital activity, R&D quality and quantity, and corporate and consumer interest in the space."

Buyers' preference for AR firms (source: 2021 Harris Group survey via Morgan Stanley)

Morgan Stanley also points out to investors that in 2021, three times as many people surveyed said they would prefer to buy an AR/VR device from Apple than from their second-place choice, Google.

That same survey put Facebook/Meta sixth, also behind Samsung, Amazon, and Microsoft. Ahead of Apple's announcement, Meta has recently pre-announced its forthcoming Meta Quest 3, though it's some four months before more details will be revealed.