Upward revisions to cloud capex offset weaker App Store, PC, and consulting demand

Overview

This report is Morgan Stanley's monthly data tracker on IT hardware, the Apple ecosystem, PCs, consulting, consumer electronics, hard disk drives, and cloud and enterprise servers. The core conclusion is that demand-side trends are diverging: App Store revenue growth, PC assembly and shipments, and IBM Consulting-related hiring are all soft; meanwhile, cloud capex continues to be revised upward, driven especially by upgrades from Oracle, Tesla, and Alibaba, indicating that AI infrastructure investment remains strong.

Core views

The report argues that the IT hardware sector should remain approached cautiously in the near term: App Store momentum within Apple services is slowing, PC demand is fading after the Windows 11 replacement cycle and prior pull-forward, and consulting demand is being affected by macro, geopolitical, and AI-related decision delays. However, cloud capex is the main positive variable, and 2027 market consensus may be underestimating spending by major cloud vendors and AI infrastructure investment.

Analysis framework

The report uses cross-validation across multi-source high-frequency and monthly alternative data, including Sensor Tower App Store net revenue and download data, Greater China Hardware team iPhone and iPad assembly forecasts, monthly Taiwan supply chain sales, CAICT and IDC China smartphone shipments, Google search intensity, Apple AI hiring, IBM Consulting hiring, PC ODM assembly, AlphaWise surveys, and capex tracking for 14 major cloud vendors.

Methodology notes

• Alternative data trackingSensor Tower App Store net revenue and download tracking

  Use App Store net revenue and download data by country and category to measure Apple services momentum.

  The report tracks more than 110 countries and 25 app categories, and uses monthly and quarterly YoY growth to assess marginal risk to Apple services revenue.

• Supply chain assembly forecastingiPhone and iPad Builds Tracker

  Use supply chain assembly volumes to estimate future quarterly device shipment trends.

  The Greater China Hardware team publishes quarterly iPhone and iPad assembly forecasts and combines them with the historical relationship between assembly and shipments to infer likely shipment volumes.

• Industry demand trackingPC ODM Builds Tracker

  Use notebook ODM assembly volumes and shipment forecasts to assess PC demand strength.

  The report compares ODM assembly volumes, quarterly shipments, and normal seasonality to identify post-Windows 11 replacement-cycle and post-pull-forward demand fade.

• Enterprise services momentum trackingIBM Consulting hiring and Accenture order readings

  Use job postings and peer order changes to observe consulting services demand.

  IBM Consulting daily job postings are down 58% versus the end of 1Q26, and this is corroborated by a YoY decline in Accenture orders, indicating pressure on consulting growth in 2H.

• Capex trackingCloud Capex Tracker

  Track expected cash capex of major global public cloud spenders.

  The report covers 14 large cloud capex entities, comparing 2026 and 2027 consensus, Morgan Stanley estimates, and the direction of monthly revisions.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Apple ecosystem

  The report focuses on Apple's supply chain, services, smartphone demand, AI hiring, and Vision Pro demand.

  Strengths

  Taiwan supply chain sales are strong YoY, supply chain checks still indicate upside potential for CY26 iPhone shipments, and the share of Apple AI-related hiring has been rising over the long term.

  Weaknesses

  App Store net revenue growth is slowing, C3Q26 iPhone assembly is down YoY, and search intensity and category growth for some services remain unstable.

  Comparison

  Under IDC methodology, iPhone China shipments significantly outperform non-Apple smartphones, but CAICT methodology shows more moderate growth.

  Risks

  App Store regulation and Epic-related cases, overly high services revenue expectations, demand elasticity after potential iPhone 18 price increases, and deviations between supply chain assembly and final shipments.

• PC hardware and notebook ODM chain

  The report uses ODM assembly and shipment forecasts to gauge PC supply and demand.

  Strengths

  C2Q26 shipments are still broadly in line with Morgan Stanley's current forecast.

  Weaknesses

  C2Q26 and C3Q26 assembly and shipments are both down double digits YoY, and normal seasonality is clearly weak.

  Comparison

  The CY26 PC shipment decline trend is consistent with IDC's expectation of full-year PC units down 11% YoY.

  Risks

  Fading benefit from the Windows 11 replacement cycle, pull-forward demand exhaustion, and higher memory prices raising end-device prices and suppressing demand.

• IBM Consulting and IT services

  The report observes consulting demand through IBM Consulting job postings and Accenture performance readings.

  Strengths

  The 90-day rolling average of job postings is still 11% above the end of 1Q26.

  Weaknesses

  Daily job postings are down 58% versus the end of 1Q26, Accenture orders are -3% YoY, and macro uncertainty plus longer decision cycles are dragging on demand.

  Comparison

  Pressure on Accenture's Middle East and EMEA revenue provides a negative reference point for IBM Consulting's 2H growth.

  Risks

  Macro and geopolitical uncertainty, delays in AI project decisions, and tighter client budgets.

• Cloud capex and AI infrastructure

  The report tracks capex by 14 major global public cloud spenders.

  Strengths

  2026 cloud capex is expected to rise +92% YoY and continues to be revised upward from last month; Morgan Stanley's 2027 estimate also remains significantly above consensus.

  Weaknesses

  Spending intensity is high, and market focus has already shifted to 2027 sustainability.

  Comparison

  2027 consensus of +14% YoY is below Morgan Stanley's estimate of +38% YoY for the top 14 cloud players.

  Risks

  Capex discipline, GPU and ASIC supply, non-AI capex assumptions, memory inflation, and cloud vendor budget revisions.

Key data

• App Store net revenueAbout +2.4% YoY from June 2026 through June 22This is a further slowdown from May; if the quarter ended on June 22, App Store revenue growth would be about +3.5% YoY.
• Impact on Apple services revenueAbout 40bp or $130 million of downside riskRelative to Morgan Stanley's June-quarter services revenue forecast of +13.3% YoY, the App Store slowdown is a modest drag.
• App Store market concentrationThe top three markets account for 66% of T12M net revenue, and the top ten markets account for 83%As of May 2026, the United States, China, and Japan were the top three markets.
• C3Q26 iPhone assembly volume54 million units, -2% YoY, +4% QoQIncluding about 17 million iPhone 18 Pro/Pro Max units and about 1 million foldable models.
• CY26 iPhone shipment forecastMorgan Stanley maintains 252 million units, while supply chain checks indicate a possible 265 million to 270 million unitsThe report did not raise its formal forecast, but believes there is upside optionality in 2H.
• C2Q26 PC assembly and shipmentsNotebook ODM assembly 29.3 million units, -12% YoY; shipments about 45.3 million units, -10% YoYAbout 3% below prior expectations and also materially weaker than normal June-quarter seasonality.
• C3Q26 PC trendAssembly about 29 million units, -15% YoY; shipments about 45 million units, -16% YoYThe report expects the PC demand trajectory to continue deteriorating, with low visibility into 2027.
• IBM Consulting hiringDaily job postings down 58% versus the end of 1Q26The 90-day rolling average is still up 11% versus the end of 1Q26, but the daily trend is negative for consulting growth in 2H26.
• 2026 cloud capex$916 billion, +92% YoY, up 5 percentage points from last monthMainly driven by Oracle raising by $18 billion, Tesla by $2.2 billion, and Alibaba by $1.9 billion.
• 2027 cloud capex consensus$1.05 trillion, +14% YoYThe report views this consensus as too conservative; Morgan Stanley estimates that aggregate cash capex for the top 14 cloud players could rise +38% YoY in 2027.
• Apple AI hiringAI-related roles account for about 35% of Apple's current hiringDeep Learning appears in 76% of AI roles, and NLP appears in 40% of AI roles, indicating that Apple continues to increase AI investment.
• Apple Taiwan supply chain salesMay 2026 +41% YoYMonthly sales of Taiwan Apple supply chain partners remain strong, but seasonal revenue for the iPhone supply chain is only about +1% QoQ.
• China smartphone shipmentsTotal April 2026 shipments of 25 million units, +12% YoYBased on CAICT methodology, estimated iPhone China shipments were +2% YoY, while IDC monthly data showed iPhone at +68% YoY, indicating an ongoing methodology gap between the two.

Impact & implications

The investment implication is that structural divergence within the sector is intensifying. In the near term, Apple-related assets need to watch services revenue expectations, App Store monetization, iPhone 18 pricing and demand elasticity; the PC hardware chain still faces fading demand and memory price pressure; the consulting services chain shows weak orders and hiring data; but the AI infrastructure and cloud capex chain still has room for upward revisions, especially as 2027 consensus may be underestimating spending intensity by major cloud vendors.

Risks

• App Store net revenue growth continues to slow, leading to downward revisions to Apple services revenue expectations.
• Apple's ability to charge link-out fees in the U.S. App Store is affected by Epic-related litigation.
• If the iPhone 18 series is priced $100 higher, demand elasticity could be weaker than expected.
• PC demand may decline further after the replacement cycle and prior pull-forward, while high memory costs could raise end-device prices.
• Consulting demand may continue to weaken in orders and hiring trends due to macro, geopolitical, and AI-driven decision delays.
• If cloud capex falls back from the high 2026 base, valuation and earnings expectations for the AI infrastructure chain could come under pressure.
• Alternative data carry methodology differences, lag, and revision risk, such as differing CAICT and IDC readings for China iPhone shipments.

What to watch

• Full June App Store net revenue, downloads, and regional monetization trends.
• Progress in Apple and Epic-related litigation, and monetization capability of U.S. App Store link-out.
• C3Q26 and C4Q26 iPhone assembly, iPhone 18 pricing strategy, and post-launch demand elasticity.
• Whether the methodology gap between CAICT and IDC on China smartphone shipments converges.
• PC ODM assembly, PC shipments, and the impact of memory prices on end demand.
• IBM Consulting job postings and peer order trends such as Accenture.
• Further revisions by Oracle, Tesla, Alibaba, and other major cloud vendors to 2026 and 2027 capex.
• Whether Apple AI-related hiring and the shares of Deep Learning and NLP roles continue to rise.