Apple Intelligence killed the iPhone super-cycle
Apple now runs the world’s most extensive network of AI
Citing the impact of tariffs and delays in the introduction of the best Apple Intelligence features, Morgan Stanley has cut its Apple price target from $275 to $252. Analyst, Erik Woodring warns that the delays in AI will dent enthusiasm for iPhone upgrades, pruning around 1.5% of the number of devices sold this and next year.
Fewer shots on goal
“With fewer “shots on goal” to improve iPhone upgrade rates next cycle, we see a more gradual path to shortening of iPhone replacement cycles,” the analysts wrote. They had been expecting that the combination of advanced AI and new iPhone would stimulate sales in the market, particularly as an upgraded Siri assistant is the number one feature customers want from the new iPhones, Morgan Stanley said citing its November AlphaWise Smartphone survey.
“Access to Advanced AI Features” was listed as a top 5 driver of smartphone upgrades for the first time, and an “Upgraded Siri digital assistant” was the Apple Intelligence feature prospective new model iPhone buyers (globally) were most interested in, the analysts said.
“Without a “killer AI app” in market ahead of the iPhone 17 launch, we don’t see AI features contributing to accelerating upgrade rates as meaningfully as we did previously,” they added.
War ain’t no good
But it’s not just slow intelligence that is dampening sales. The trade war with China is also causing consternation. “At the same time, we are incorporating incremental cost headwinds from China tariffs, as while we believe Apple is taking actions to help mitigate tariffs, it’s unlikely that Apple can fully offset this cost without broad tariff exemptions, which have not been granted,” Woodring wrote.
The analysts aren’t in panic. They see Apple rising to these challenges.
When it comes to AI they note that Apple is not backing down, and that it still has unique advantages to help provide unique AI features competitors may struggle to offer. “However, to enable all of the above, Apple needs to get the underlying “killer app” right, and that is what, in our view, is leading to the delay in a more advanced Siri coming to market,” they said.
On the road to WWDC
Looking forward, Woodring said, “We believe the path to near-term outperformance will be more challenging for Apple until we get to WWDC in June, which could potentially highlight the Siri roadmap, new AI partnerships, a broader software overhaul, and perhaps even an update on the Apple Intelligence regulatory approval process in China, reinvigorating excitement around the iPhone 17 launch.” The analysts also seemed optimistic that new iPhone models – such as the iPhone 16e and hotly speculated iPhone Air – will help mitigate some of the slowness.
But the fact remains that the failure to launch the best feature of Apple Intelligence has impacted Apple’s success, meaning expectation of an AI-driven supercycle has now been utterly quashed.
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