Apple is seeing deferral, not destruction of iPhone 14 demand, buy the dip

By Senad Karaahmetovic

Morgan Stanley analysts urged the firm’s clients to take the opportunity and buy the dip in Apple (NASDAQ:) amid the recent selloff.

Apple shares are trading below $140 and near 4-month highs after the company issued a press release on Sunday to note that it is experiencing iPhone 14 production issues in China amid ongoing COVID-related restrictions.

Bloomberg News reported that Apple expects to ship 3 million fewer iPhone 14 units due to a slowing demand rather than supply chain issues. For the analysts, Apple is seeing a “deferral – not destruction – of demand” for the iPhone 14.

Still, the analysts cut the revenue forecast for the December quarter by $6 billion which led them to cut the price target by $2 per share to $175.

“We see this as a supply problem, not a demand problem, as iPhone 14 Pro and Pro Max channel inventory is below the target range and lead times have remained strong cycle to-date. Said differently, we believe this situation equates to more of a deferral of iPhone demand than a destruction of demand, which does not change our OW thesis,” they told clients in a note.

All-in-all, Morgan Stanley would be a “methodical buyer” of Apple stock as the valuation nears 20x P/E.

“We believe the Street will likely be overly conservative in assuming how much iPhone demand Apple could recoup in the March ’23 quarter, which actually somewhat “de-risks” the model and helps to remove an overhang (anticipated iPhone build cuts) that has been central to the bear thesis post-September quarter earnings,” the analysts further stated.

Apple stock price closed at $138.92 yesterday.