To The Moon

Apple’s Revenue Could Get a Big Boost From AR/VR. Here’s One Estimate of How Much.

Apple’s Worldwide Developers Conference kicks off Monday, and expectations are high that the focus of the company’s keynote will be a widely anticipated and speculated about AR/VR headset.

Near-term sales expectations for the device—which Apple $Apple(AAPL)$ has said nothing about—are modest. But there’s an argument that such a product could turn into a substantial business for Apple over the long run.

Morgan Stanley analyst Erik Woodring made that case in a research note Friday, in which he reiterated his Overweight rating and lifted his price target on Apple shares to $190 from $185, entirely based on future augmented reality- and virtual reality-related revenue. Shares were trading around $180.58 in midday trading Friday.

Apple has materially outperformed the broader market only once on the day of the WWDC over the past decade, Woodring noted, but he said he thinks this year could be an exception because of the opportunity in AR and VR.

While Apple hasn’t announced the device, many reports by various media outlets have surfaced with details. As a matter of policy, Apple doesn’t comment on unannounced products.

According to media reports, the AR/VR device will be priced at $3,000. Woodring said his checks with Apple’s supply-chain partners suggest it will arrive in the December 2023 quarter, with an initial production of 300,000 to 500,000 units, implying no revenue contribution in the September 2023 fiscal year. He said he thinks shipments will grow slowly, with 850,000 units in fiscal 2024 and 3.4 million by fiscal year 2026.

He estimated that revenue from a new device will rise from $2.6 billion in the September 2024 fiscal year to $8 billion in 2026. After that, Woodring said the number could get bigger—maybe a lot bigger.

The combination of technological improvements, new use cases, and lower price points will boost the total addressable market to $100 billion in 2030, and over $500 billion by 2037, Woodring said.

The analyst concluded that AR/VR could become the next major computing platform for Apple, with revenue topping $20 billion a year by 2030 and perhaps reaching as high as $70 billion. His higher target price for the stock reflects an extra $174 billion in market capitalization for new business, mostly AR and VR devices.

That’s a huge leap of faith. As the analyst noted, the market for AR/VR headsets was 9 million units in 2022, down 20% from the previous year. That implies a total market of $4 billion, with most of that going to Meta’s Quest headsets, he said. Apple could provide a catalyst to accelerate growth, he added.

A key question for Woodring is what applications will drive buyers. That’s why Apple is launching the device at the developers conference, Woodring said, “to showcase the technological capabilities of the device.”

Gaming is an obvious use case, but Woodring also expects to see “fully immersive” videoconferencing, streaming video, fitness apps, and e-reading. To entice early adopters, Apple will to have to highlight entirely new mixed-reality applications, Woodring said.