The firm's bearish stance is due to the Cupertino, Calif., company's recent decision to close its stores outside China as the world comes to grips with the impact of the coronavirus pandemic.
"While we do expect Apple to recoup much of this revenue in subsequent quarters, increasing stock market volatility and the risk of a global recession raises the chance of some level of demand destruction," analyst Katy Huberty said.
As a result, the firm lowered its fiscal 2020 revenue estimate for Apple by 4.5% while raising its fiscal 2021 revenue estimate by 3% due to pent-up demand for products that will build while consumers are barred from Apple stores.
"While a global recession could put incremental pressure on consumer spend over the next two years," Huberty wrote, "AAPL benefits from loyal customers, stretched iPhone replacement cycles, an upcoming 5G product launch, and reaccelerating services-revenue growth, where March quarter App Store growth is tracking ahead of our estimates through February."
The firm's key assumptions include the estimate that the retail-store shutdown will last roughly six weeks and that when stores reopen, overall demand levels will return to normal during the warmer summer months.
Morgan Stanley also assumes that half the company's cumulative revenue lost over the next 12 weeks will recover in the following year.
Apple shares at last check were up 2.6%. They'd fallen 13% to $242.21 in the sharply down Monday on Wall Street.