Morgan Stanley Fund: Apple's smart debut, AI phone welcomes super cycle?

According to the financial news app Zhitong Finance, on the morning of September 10th Beijing time, the highly anticipated "Tech Spring Festival" Apple Autumn Launch Event was held as scheduled, showcasing new products such as the latest iPhone, Apple Watch, AirPods, etc. The iPhone 16, equipped with the latest 3nm A18 series chip, stole the spotlight. Lei Zhiyong, Deputy Director of Equity Investment Department at Morgan Stanley Fund, believes that in this AI terminal innovation cycle, in addition to the increase in terminal sales, the expected use of terminals will bring a huge demand for inference computing power, which is expected to further boost the demand for computing chips. At the same time, once AI is popularized on terminals, various software and model revenues may truly achieve widespread adoption and explosion among consumers. In terms of investment opportunities, he is optimistic about the pull of AI on cloud computing power and consumer product demand for terminals.

Apple's Smart Debut, Will AI Phones Enter a Super Cycle?

Compared to the Apple Intelligence unveiled at Apple's WWDC in June this year, this launch event did not bring many software changes, mainly including two new independent apps represented by Writing Tools and Image Playground, a smarter Siri, and a cloud server Private Cloud Compute emphasizing user privacy protection.

In terms of hardware, the iPhone 16 series is equipped with a powerful A18 Bionic chip, capable of meeting the computing power requirements of Apple Intelligence. Compared to the previous generation chip, the A18's machine learning speed has doubled.

Regarding the most anticipated launch date, Apple (AAPL.US) clearly stated that the English version of Apple Intelligence will start landing in the U.S. next month, and will gradually go online in Australia, Canada, New Zealand, South Africa, the UK, etc. from December onwards; support for other languages such as Chinese, French, and Japanese is expected to wait until 2025.

With the support of Apple Intelligence, the iPhone 16 is expected to unleash pent-up demand and accelerate the replacement cycle for iPhones. According to market estimates, the shipment volume of the iPhone 16 series in 2024 is expected to reach 88 million to 89 million units. By the end of 2024, the global Generative Artificial Intelligence (GenAI) phone market is expected to grow by 344%, capturing an 18% market share.

Source: IDC

Lei Zhiyong, Deputy Director of Equity Investment Department at Morgan Stanley Fund and Manager of Morgan Stanley Digital Economy Hybrid Fund, previously stated that AI phones are very similar to the 5G replacement wave. A 1% replacement rate is expected to boost Apple's sales by 6% and increase Apple's revenue by 1.8%.

However, compared to the replacement wave, Lei Zhiyong believes that the significance of Apple Intelligence lies more in the potential for GenAI to penetrate into the daily lives of the general public for the first time. Apple AI is expected to bring Apple an incremental revenue in the billions. If by 2025 there are 300-500 million users paying 10 RMB for AI each month, corresponding to nearly 5 billion RMB per month, and the existing 1.5 billion users correspond to 15 billion RMB per month Exceeding 100 billion yuan/year.

What's next for the AI industry?

So, how will the replacement cycle brought by Apple's smart devices affect the AI industry, which has been under pressure recently?

Recently, U.S. technology companies, especially sectors related to AI chips, have been facing pressure. From the peak on July 11th to last Friday, September 6th, the Philadelphia Semiconductor Index has dropped by over 23% (source: Wind).

The success of Apple's product launch event injected some vitality into the technology sector, with the Philadelphia Semiconductor Index rebounding by 2.15% on the same day, and the Nasdaq Index also closing up by 1.16% (source: Wind).

In fact, compared to the relatively "vague" concepts like the metaverse in the past, the visible performance brought by the rapid development of AI in the past two years is significant.

Taking a leading global AI chip company as an example, its revenue from AI-related data centers has been steadily increasing over the past two years. The proportion of data center revenue to total revenue has risen from less than 60% to 87.46% in the most recent quarter, all thanks to the real growth brought by AI.

Source: Public report of a leading global AI chip company

Therefore, despite short-term pressure, the overall trend of artificial intelligence has not changed. Lei Zhiyong believes that the evolution of artificial intelligence is phased, and it may fall below expectations at a certain stage, but it does not prove that artificial intelligence has failed.

The future of artificial intelligence is vast and profound, aiming for general artificial intelligence. It is not just about refining information on the internet in a question-and-answer format. It should be able to replace humans in some challenging environments or repetitive tasks, helping to complete these tasks. There is still a long way to go to achieve this goal. Lei Zhiyong also pointed out that although the investment side is very hot, from the industrial perspective, artificial intelligence is still in its early stages.

Specifically in terms of investment opportunities, Lei Zhiyong is optimistic about the pull of AI on cloud computing power and demand for terminal consumer products. He mentioned that currently, both domestic and international tech giants are not only focusing on cloud computing power but also moving towards the application end, especially intelligent terminals. In the intelligent terminal industry chain, domestic companies can serve as supporting manufacturing links, with orders as performance support.

In this round of AI terminal innovation cycle, besides the growth in terminal sales, he expects that the use of terminals will bring a huge demand for inference computing power, which is expected to further increase the demand for computing chips. At the same time, once AI is popularized on terminals, various software and model revenues may truly achieve widespread consumer adoption and explosion on the consumer end