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AI technology is expected to trigger a "new trend", and institutions are optimistic about Apple's sales growth prospects.

Before the U.S. stock market opened today, Apple's stock price rose by more than 2%. Morgan Stanley rated Apple as its top pick and raised its target price from $216 to $273, which still has 18.4% room for growth compared to last Friday's closing price.

On Monday, Morgan Stanley analyst Erik Woodring released a report saying that Apple Intelligence features will become a "significant catalyst" for Apple's multi-year device upgrade cycle. The report said:

“We have underestimated the significance of the upcoming upgrade cycle, and the market is still underestimating it.”
"We believe there will be record levels of pent-up demand for the iPhone 16 lineup later this year, and the first release of Apple Intelligence at WWDC gives us more confidence that fiscal 2025 could be the start of a multi-year device refresh cycle."

Benefiting from AI technology, Woodring expects Apple's average selling price (ASP) to grow by 5% annually, with total revenue reaching $485 billion and earnings of $8.7 by fiscal 2026, 7-9% higher than consensus expectations respectively.

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

Morgan Stanley believes that the launch of Apple Intelligence technology will stimulate potential "replacement" demand, thereby starting a "multi-year upgrade cycle" and driving a strong increase in shipments.

The report states,Since only iPhone 15 Pro/Pro Max and newer models can support Apple's AI technology, this is expected to drive consumers to actively upgrade their phones and promote the growth of iPhone ASP (average selling price).

Woodring predicts thatApple's iPhone shipments will exceed 500 million units in the next two years, higher than the high record in 2021-2022.Shipments are expected to reach 235 million units in fiscal 2025 and 262 million units in fiscal 2026.

Specifically, Morgan Stanley expects that in fiscal years 25 and 26, 66-69% of iPhone shipments will be new models, 2-6 percentage points higher than in fiscal year 24 and 3 percentage points higher than the peak before fiscal year 22, driving iPhone ASP growth of 4-5% annually.

Woodring said that in addition to AI capabilities, the strong belief in upgrade cycles is also due to three unprecedented factors: an installed base of more than 1.3 billion devices, a longer upgrade cycle of 4.8 years on average, and new technologies accounting for only 8% of the iPhone/iPad installed base.

In addition, only 24% of iPads currently support running Apple Intelligence, which means that iPads are also likely to enter an upgrade cycle.

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

Apple launched the Apple Intelligence feature at WWDC in June. After the release, the company's stock price hit its first record high of the year. As of the close of last Friday, Apple's stock price had risen 17%, exceeding the 7% increase in the Nasdaq 100 Index during the same period.