Morgan Stanley (NYSE:MS) analysts have upgraded Apple stock to their Top Pick, reflecting their expectations of a forthcoming record upgrade cycle driven by the integration of Apple Intelligence into its devices.
As announced during the WWDC 2024 event, Apple Intelligence will include advanced voice-activated command features, an upgraded Siri, new Generative AI features, and broader foundation models through ChatGPT integration.
“We see Apple Intelligence as the closest possible offering to a true smart virtual assistant in the market today,” Morgan Stanley analysts highlighted.
They project that Apple Inc (NASDAQ:AAPL) will ship 235 million iPhones in the fiscal year 2025 (FY25) and 262 million in FY26, which are 2-12% above consensus estimates. These forecasts are supported by the analysis of Apple’s extensive installed base and the potential for upgrades.
Only 15% of Apple’s current device base can support AI features, pointing to a significant opportunity for upgrades as users transition to devices equipped with the A17 Pro or M-series chips.
Morgan Stanley’s report also emphasizes that Apple is entering FY25 with the “largest iPhone upgradeable base in history.”
Analysts estimate that 31% of the 700 million upgradeable iPhones will be replaced within the next 12 months, driving the projected shipment numbers. In the US, where access to Apple Intelligence will be immediate, upgrade rates are expected to reach a record 36% in FY25.
Globally, the iPhone replacement cycle is poised to accelerate further in FY26, driven by broader language support for Apple Intelligence, additional software innovations, and new hardware features. This cycle is projected to result in 262 million shipments, which represents an all-time high and 12% above consensus estimates.
Beyond just unit growth, Morgan Stanley notes that the mix shift towards premium iPhone models is expected to drive 4-5% annual growth in average selling prices (ASPs) for FY25 and FY26.
“Growth in iPhone units will account for 36% of Apple's total revenue growth through FY26, higher iPhone ASPs and iPad growth will account for another 26% of total revenue growth,” analysts said.
They also set a new price target of $273 for Apple stock, implying an upside potential of more than 18% from current levels.
“We believe there is more room for the stock to run, as investors broadly remain underweight Apple shares and accelerating iPhone unit growth historically drives Apple stock outperformance,” analysts wrote.