Morgan Stanley: “Apple record AI smartphone upgrades are underway”

Given their anticipation of a record upgrade cycle in the near future fueled by the incorporation of Apple Intelligence into its products, Morgan Stanley analysts have boosted Apple to their Top Pick.

Apple Intelligence is set to have enhanced voice-activated command capabilities, a redesigned Siri, new Generative AI features, and expanded foundation models via ChatGPT integration, as revealed at WWDC 2024.

Morgan Stanley analysts said, "We view Apple Intelligence as the closest possible offering to a true smart virtual assistant in the market today."

They predict that Apple will ship 262 million iPhones in FY26 and 235 million in FY25, which is 2-12% more than what is expected by consensus. The examination of Apple's large installed base and the possibility of upgrades bolsters these projections.

Merely 15% of Apple's present device lineup is capable of utilising AI functionalities, suggesting a noteworthy prospect for enhancements when customers shift to devices including the A17 Pro or M-series CPUs.

The fact that Apple has the "largest iPhone upgradeable base in history" going into FY25 is another point made in the Morgan Stanley analysis.

The predicted shipping statistics are based on analyst estimates that 31% of the 700 million upgradeable iPhones will be replaced in the upcoming 12 months. In the United States, where users will get instant access to Apple Intelligence, upgrade rates are predicted to hit a record 36% in FY25.

With more software advancements, new hardware capabilities, and expanded language support for Apple Intelligence, the global iPhone replacement cycle is expected to pick in speed in FY26. It is anticipated that this cycle will produce 262 million shipments, a record and 12% more than expected by consensus.

Additionally, they announced a new price objective of $273 for Apple stock, which suggests that it may rise by more than 18% from its current price.

Analysts stated, "We believe there is more room for the stock to run, as investors are generally still underweight Apple shares and historically, Apple stock outperformance is driven by accelerating iPhone unit growth."

(Sources: investing.com, reuters.com)