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Apple ‘s highly anticipated augmented and virtual reality product could generate a solid payoff for the iPhone maker over the long haul, according to Morgan Stanley. Near term “AR/VR is < 1% of revs but AR/VR has the potential to become Apple’s next $20B+ compute platform,” said Erik Woodring in a Friday note to clients. Given this setup, the analyst hiked his price target to $190 a share, reflecting about 5.5% upside from Thursday’s close. AAPL YTD mountain Apple shares in 2023 The revised price target comes ahead of the company’s Worldwide Developers Conference next week, where many expect the technology giant to reveal its mixed-reality headset. This would mark the company’s first new major product line since the launch of the Apple Watch in 2014. Across the board, technological improvements, growing use cases and lower-priced products could push the total addressable market for augmented reality and virtual reality headsets to $100 billion by 2030 and $500 billion by 2037, according to Woodring. “We believe the launch of Apple’s AR/VR headset can be a catalyst for TAM expansion, similar to how past Apple product launches have catalyzed market expansion across smartphones, tablets, and wearables,” Woodring wrote. He expects the Apple headset will offer a range of specialized features over competitors. This should include a home screen feature mirroring a 3D iPhone display. Users are also expected to be able to operate the headset without hand controllers, by using gestures and eye movement. “If we assume that Apple can read the same revenue share in AR/VR headsets as it has in its current Product markets, then AR/VR headsets could become a $20-70B business for Apple, or 5-18% of current total revenue,” Woodring said. Other Wall Street firms also appear bullish on Apple’s headset prospects, with Jefferies’ analyst Andrew Uerkwitz lifting his price target on shares to $210 from $195. That implies about 17% upside from Thursday’s close. While Apple may reveal the product and share it with developers this year, he doesn’t expect a launch in 2024. “We expect the device will lean heavy into Apple’s propensity for owned chip and sensor design and be a technology marvel vs. competitor predecessors, which in our view, despite the early high price, gives XR a chance to break out of niche status that has come to be over the past decade,” he said. Many analysts anticipate steep pricing for the first iteration of the product. However, Barclays’ Ross Sandler noted Apple will need lower price points to fuel mainstream adoption. While the product should fuel excitement, Apple needs a “killer app” to reel in more daily active users to a currently small market, Sandler said. “Apple’s long-awaited entrance to mixed reality may help validate the tens of billions of dollars that META has invested over the past decade into the space,” he wrote. — CNBC’s Michael Bloom contributed reporting.
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