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Apple’s developer conference kicks off next week.
Patrick T. Fallon/AFP via Getty Images
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The Worldwide Developers Conference kicks off on Monday, and expectations are high that the company’s keynote will focus on a widely anticipated and speculated AR/VR headset.
Short-term sales expectations for the device, which Apple (ticker: AAPL) hasn’t said anything about, are modest. But there is an argument that such a product could become a big business for Apple in the long run.
Morgan Stanley analyst Erik Woodring made the case in a research note on Friday, in which he reiterated his overweight rating and raised his price target on Apple shares to $190 from $185, entirely based on future revenues related to augmented reality and virtual reality. The shares were trading around $180.58 as of midday Friday.
Apple has materially outperformed the broader market only once on WWDC day in the past decade, Woodring noted, but he said he thinks this year could be an exception due to the opportunity in AR and VR.
Although Apple has not announced the device, numerous reports from various media outlets have surfaced with details. As a matter of principle, Apple does not comment on unannounced products.
According to media reports, the AR/VR device will cost $3,000. Woodring said his checks with Apple’s supply chain partners suggest it will arrive in the December quarter of 2023, with initial production of 300,000 to 500,000 units, implying no contribution to revenue in fiscal year September 2023. He said he expects shipments to increase slowly, with 850,000 units in fiscal year 2024 and 3.4 million by fiscal year 2026.
He estimated that revenue from a new device will grow from $2.6 billion in the September 2024 fiscal year to $8 billion in 2026. After that, Woodring said the figure could rise, possibly be much more.
The combination of technological improvements, new use cases and lower prices will bring the total addressable market to $100 billion in 2030 and more than $500 billion by 2037, Woodring said.
The analyst concluded that AR/VR could become the next major computing platform for Apple, with revenues exceeding $20 billion per year by 2030 and potentially reaching $70 billion. Its higher target price for the stock reflects an additional $174 billion in market capitalization for new business, primarily AR and VR devices.
It’s a huge leap of faith. As the analyst noted, the AR/VR headset market was 9 million units in 2022, down 20% from the previous year. This implies a total market of $4 billion, most of which goes to
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Quest helmets, he says. Apple could provide a catalyst to accelerate growth, he added.
A key question for Woodring is which apps will motivate buyers. That’s why Apple is launching the device at the developer conference, Woodring said, “to showcase the device’s technological capabilities.”
Gaming is an obvious use case, but Woodring also expects to see “fully immersive” video conferencing, streaming video, fitness apps and e-reading. To attract early adopters, Apple will need to push out entirely new mixed reality apps, Woodring said.
Write to Eric J. Savitz at [email protected]