Apple Intelligence to drive upgrade cycles for iPhone and iPad

AppleInsider

Apple Intelligence is an important catalyst for iPhone and iPad sales, according to Morgan Stanley, which has also declared it to be its top stock pick.

Apple Intelligence will change Siri in iOS 18.

Apple Intelligence could be a groundbreaking change to the way people use smartphones, but it does require users to be on newer devices. This is anticipated to be a very good thing in the view of Morgan Stanley analysts.

In a note to investors seen by AppleInsider, the prospect of Apple Intelligence to improve device sales has helped push Morgan Stanley's price target for the company's stock from $216 to $273. This upgrade also makes Apple the analysts' "Top Pick" for investors.

Apple Intelligence is a "clear catalyst for a multi-year product upgrade cycle," the note reads, in part due to its limited backward compatibility. However, it also admits to having "previously underestimated" how material the upgrade cycle could be.

New analysis from the firm indicates Apple could ship nearly half a billion iPhones over the next two years, 6% higher than the record 2021 to 2022 full-year cycle. At the same time, it could drive 5% annual average selling price growth to reach $485 billion in total revenue and an $8.70 earnings per share for the 2026 financial year.

Morgan Stanley explains its high conviction in a major upgrade cycle call is due to a number of factors. Aside from there being such a huge install base of about 1.3 billion devices, replacement cycles have been extended to 4.8 years.

Add in that this new technology is being offered to "such a small cohort of users," namely about 8% of iPhone and iPad users, the stars are aligning for a supercycle.

To use Apple Intelligence, users will need to upgrade to an iPhone 15 Pro or newer model, which should benefit Apple with a positive mix shift and ASP growth. For the 2025 and 2026 financial years, it's now thought that 66% to 69% of shipped iPhones will be new models, between 2 and 6 points above 2023 and 2024 figures.

This could result in 4% to 5% annual iPhone ASP growth.

On the iPad side, only 24% can run Apple Intelligence, which implies a "mini upgrade cycle" for the tablets. It could contract iPad replacement cycles to 3.8 years, the pre-COVID average.

Apple Intelligence may also help improve Apple's fortunes in China, with a new intelligent software layer potentially able to "spur strong upgrades." That is, so long as Apple can find a partner in China quickly.



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Morgan Stanley Eric Woodring was the first to see Apple Intelligence/on device AI and that it was the future for Apple. He’s one of the best on Wall Street. 

tht

I’m skeptical that any of these LLM based features will drive any kind of increased sales cycle. 

The days of a supercycle a la the iPhones 3G through 6S are over. It’s just slow and steady replacement cycles now, with small ebbs and flows in units sold per quarter. 

Stabitha_Christie

tht said:

I’m skeptical that any of these LLM based features will drive any kind of increased sales cycle. 

The days of a supercycle a la the iPhones 3G through 6S are over. It’s just slow and steady replacement cycles now, with small ebbs and flows in units sold per quarter. 

I don't think they are suggesting it will be a super cycle but rather it will push upgrades to the higher end iPhones and increase the average selling price. And that it might shorten the upgrade cycle for buyers over the next two years. So rather than waiting four years to replace their iPhones people might be inclined to drop to three in order to get features relate to Apple Intelligence.