Institutional investors may not be bullish enough on Apple, Morgan Stanley suggests

Published Tue, Nov 24 20209:22 AM ESTUpdated Tue, Nov 24 202011:57 AM EST

(This story is for CNBC PRO subscribers only.) Apple , the largest company in the U.S., has long been a favorite stock on the Street, but Morgan Stanley found that institutional investors are actually underweight the tech giant. Analyst Katy Huberty came to this conclusion after analyzing Apple's weighting in the S & P 500 against its total institutional ownership. The finding represents a divergence from other large-cap technology companies, including Microsoft and Amazon , which have seen their ownership among institutional investors shift based on their portion of the market. The divergence could force fund managers to buy more Apple shares or risk underperforming the S & P. Still, Huberty said Apple's institutional ownership continues to reach new highs. As of the end of September, such ownership stood at 5.5%, a 45 basis point jump quarter over quarter. Huberty pointed to three key factors driving the rise in institutional ownership, including a new portfolio of 5G iPhones, growing monetization of the services business as well as "broad product strength due in large part to a record product announcement year and sustained work, learn, and play from home demand." But during the third quarter, shares of Apple gained 26.98%, increasing its weighting in the S & P 500 by 88 basis points. This pushed the stock to an all-time high weighting of 6.7%. "Over the last 12 months, Apple's institutional ownership has increased by a record 250bps, yet Apple's weighting in the S & P 500 has increased by over 280bps, which shows that despite record accumulation over the last year, institutional investors are still underweight Apple shares," Huberty wrote in a note to clients. As of the end of September, the spread between the company's market weighting and institutional ownership reached its largest in two years. Apple is Morgan Stanley's top IT hardware pick into 2021, and the firm anticipates "positive consensus estimate revisions driving the next leg of Apple outperformance over the next 12 months." Shares of Apple were up 1% in midday trading Tuesday. For the year, the stock has gained 55% through Monday's close. - CNBC's Michael Bloom contributed reporting.

People wait in line at the Apple Fifth Avenue store for the release of the new iPhone on October 23, 2020 in New York City.

Michael M. Santiago | Getty Images

(This story is for CNBC PRO subscribers only.)

Apple, the largest company in the U.S., has long been a favorite stock on the Street, but Morgan Stanley found that institutional investors are actually underweight the tech giant.

Analyst Katy Huberty came to this conclusion after analyzing Apple's weighting in the S&P 500 against its total institutional ownership. The finding represents a divergence from other large-cap technology companies, including Microsoft and Amazon, which have seen their ownership among institutional investors shift based on their portion of the market.

The divergence could force fund managers to buy more Apple shares or risk underperforming the S&P.