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Higher prices will actually boost iPhone demand, not hurt it, Morgan Stanley predicts

  • Morgan Stanley raised its 12- to 18-month price target on Apple to $194 from $182, representing 22 percent upside from Monday's close.
  • The highly-anticipated iPhone X, which introduces new face recognition technology in Apple's most expensive smartphone, will be sold for a hefty $999.
  • But that price increase and others across Apple's product line won't hurt demand, but rather help it, Morgan Stanley says.
  • "Innovation-led price increases historically boost, rather than hinder, Apple
    demand," said analyst Katy Huberty.
Tim Cook, chief executive officer of Apple
Michel Porro | Getty Images
Tim Cook, chief executive officer of Apple

Apple's products are so good, they are apparently immune to the normal laws of economics.

Morgan Stanley on Tuesday raised its 12- to 18-month price target on Apple to $194 from $182, as the firm sees the higher prices as positive, not a negative like some other research firms on Wall Street.

"Innovation-led price increases historically boost, rather than hinder, Apple demand," wrote Morgan Stanley analyst Katy Huberty in Tuesday's note to clients.

She explains further:

"Apple is an aspirational brand offering high quality, innovative products at a premium price. As a result, the company escapes the typical trend of declining prices that drive demand for other devices. In fact, demand for iPhone is directly correlated to the direction of ASPs - higher prices, higher demand and vice versa."

Her new price forecast represents 22 percent upside from Monday's close. Apple's stock is 0.6 percent higher in premarket trading.

Huberty's raised her 2018 revenue forecast to $301 billion, 14 percent higher than the Wall Street consensus.

Morgan Stanley also noted the extreme loyalty of Apple customers, which is showing signs of increasing from already high levels.

"According to our April 2017 AlphaWise US Smartphone survey, Ninety-two percent of US iPhone users who plan to upgrade their phone in the next year plan to repurchase an iPhone, up from 86% the year before."

Apple last week announced its latest lineup of iPhone, iPad, and Apple Watch technology, which all include shiny new price tags. The highly-anticipated iPhone X, which introduces new face recognition technology in Apple's most expensive smartphone, will be sold for a $999, $50 more than Morgan Stanley estimated.

The shares have fallen in the wake of the new product announcements, in part over concern about the higher prices.