Why investors should be more excited about the Apple Vision Pro

• Apple's new headset has immense potential and investors should be more excited, Morgan Stanley says.
• The Apple Vision Pro could become a content powerhouse, despite muted expectations.

The Apple Vision Pro has debuted to limited fanfare on Wall Street, but Morgan Stanley strategists said the "immense" potential for the product should be met with more excitement among investors.

In a note Tuesday, analysts led by Erik W. Woodring described their positive experience after 72 hours with Apple's new headset.

"We've been impressed by our experience with the device thus far, and believe that consuming content - immersive video, mixed reality gaming, live sports, etc. - will be the initial consumer 'killer app' on the device," the Morgan Stanley team said.

Based on the bank's Fall 2023 AlphaWise Smartphone survey, 33% of US iPhone users said they would likely purchase the product within the first 12 months of its release.

Morgan Stanley forecasts that Apple can ramp up its revenue from the Vision Pro to $4 billion within four years, which would rank just ahead of the launch for AirPods, and behind that of the Apple Watch.

"[W]e believe that until Apple introduces new form factors at more attainable price points, the Vision Pro will remain a niche consumer device unlikely to make a significant impact in the Apple financial model," they added.

Long-term upside

Given Apple's track record with the iPhone and other products, the successive generations of the Apple Vision Pro should improve.

In Morgan Stanley's view, this promising trajectory is "effectively a free call option" on Apple innovation, and it could continue to bring fresh upside over the next five years.

The initial experience of picking up the product at an Apple store, for starters, is well-scripted and extremely useful, the analysts said. The 30-minute demo is unlike any other, and it's useful for consumers to learn how to control the headset.

Meanwhile, the content consumption available on the twin, high-definition screens is "incredible," Woodring said.

"It's an entirely new way of consuming content, and is as close to the 'real world' as you can get without physically being there," he said. "This is where we were - by far - most impressed with the device...the Vision Pro is clearly constructed to become a content powerhouse."

In addition, the eye-tracking feature and external cameras are more accurate and responsive than expected, and Morgan Stanley said it could soon become a helpful productivity tool similar to a computer with multiple displays.

To be sure, the product could take some getting used to, as far as the comfortability of placing a small computer on your face. The analysts said, at this point, they would still opt to watch a movie on a regular TV screen rather than the Vision Pro, even though the latter would be more immersive.

Among other areas for improvement, the analysts pointed to the native app ecosystem still needing to be built out, better video pixelation around the periphery of the displays, and a lower price point to allow for more customers.

Apple stock hovered at $189 a share after midday on Wednesday. Morgan Stanley maintained its 12-month price target of $220, representing potential upside of about 16%.