"Apple's wave of phone upgrades is underestimated!" Morgan Stanley predicts that iPhone shipments will exceed 500 million in the next two years, with nearly 70% being new models

AI technology is expected to spark a "replacement trend", with institutions optimistic about Apple's sales growth prospects.

In pre-market trading today, Apple's stock price rose more than 2% at one point. On the news front, Morgan Stanley has rated Apple as a top pick, raising its target price from $216 to $273, still representing an 18.4% upside from last Friday's closing price.

On Monday, Morgan Stanley analyst Erik Woodring released a report stating that Apple's Intelligence feature will be a "significant catalyst" for the multi-year upgrade cycle of Apple devices. The report stated:

"We underestimated the importance of the upcoming upgrade cycle, and the market is still underestimating this."

"We believe there will be a record level of pent-up demand released on the iPhone 16 series products later this year, and Apple first introduced Apple Intelligence at WWDC, which makes us more convinced that the 2025 fiscal year may mark the beginning of a multi-year device upgrade cycle."

Benefiting from AI technology, Woodring expects Apple's Average Selling Price (ASP) to grow at an annual rate of 5%, with total revenue reaching $485 billion in the 2026 fiscal year and earnings of $8.7, exceeding consensus expectations by 7-9%.

Within the next two years, nearly 70% of shipments will be new models

Morgan Stanley believes that the introduction of Apple Intelligence technology will stimulate potential "replacement" demand, thus initiating a "multi-year upgrade cycle" and driving strong shipment growth.

The report states, "As only the iPhone 15 Pro/Pro Max and updated models can support Apple's AI technology, it is expected to drive consumers to actively upgrade, promoting growth in iPhone ASP (Average Selling Price)."

Woodring predicts that Apple's iPhone shipments in the next two years will exceed 500 million units, surpassing the high-water mark of 2021-2022. Shipments are expected to be 235 million units in the 2025 fiscal year and 262 million units in the 2026 fiscal year.

Specifically, Morgan Stanley expects that in fiscal years 2025 and 2026, 66-69% of iPhone shipments will be new models, an increase of 2-6 percentage points from fiscal year 2024, 3 percentage points higher than the peak before fiscal year 2022, driving annual growth in iPhone ASP by 4-5%.

Woodring stated that in addition to the AI feature, the firm belief in the upgrade cycle is also attributed to three factors that have never been seen before: an installed base of over 1.3 billion devices, a longer average upgrade cycle of 4.8 years, and new technologies accounting for only 8% of iPhone/iPad installed base In addition, currently only 24% of iPads support running Apple Intelligence, which means that iPads may also enter an upgrade cycle.

Just last week, Bank of America analyst Wamsi Mohan and others also released a research report, predicting that this year's generative AI will strengthen iPhone replacement willingness, bringing strong sales growth and profit margin expansion, raising Apple's target price from $230 to $256.

Apple introduced the Apple Intelligence feature at WWDC in June, and after its release, the company's stock price hit a record high for the first time this year. As of last Friday's close, Apple's stock price has risen by 17%, exceeding the 7% increase in the Nasdaq 100 index during the same period.