Apple's 'golden' AI-driven iPhone upgrade cycle isn't looking so shiny
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- Apple has yet to capitalize on the initial hype of Apple Intelligence.
- Analysts have adjusted their expectations of a "super cycle upgrade " for iPhones.
- This month, Apple will report its first earnings since launching Apple Intelligence.
Apple bet big on Apple Intelligence, but the iPhone upgrade cycle that some analysts predicted it would spark doesn't look like it's happened yet.
Apple introduced its AI venture in June last year during its Worldwide Developers Conference, and Apple Intelligence launched to eligible iPhones in October. Its availability is limited to iPhone 15 Pro models or later, which Wedbush analyst Dan Ives had said could drive a "golden upgrade cycle" among iPhone holders — and which would be a big sales boon for Apple.
Yet the tech giant got a rare downgrade to "sell" on Tuesday. Craig Moffett, senior analyst at MoffettNathanson, said the move was partly due to a lack of consumer excitement around AI, according to Bloomberg.
"Not only have we not seen any sign of an upgrade cycle, something that would be concerning enough on its own, but we have seen growing evidence that consumers are unmoved by AI functionality," Moffett said.
Apple had touted the iPhone 16, which went on sale in September, as the first iPhone built from the ground up for AI. William Kerwin, tech analyst at Morningstar, previously told BI that AI was Apple's "biggest story" of 2024.
Although there was a lot of hype around Apple Intelligence when it was first announced, analysts have had to adjust their expectations.
"The initial excitement from the announcement" has moved to "actually becoming expectations for a tepid growth cycle in the first year, and more aggressive expectations for year two," Morningstar's Kerwin said.
Ming-Chi Kuo, an analyst in Taiwan known for his Apple predictions, wrote in a blog post that the iPhone 16 series sold about 37 million units during its first preorder weekend — a 12.7% drop year-over-year from the iPhone 15's release weekend, according to Kuo.
Wall Street was bullish on Apple stock following WWDC's AI announcements, but the full capabilities of Apple Intelligence are yet to come.
Gene Munster, managing partner at Deepwater Asset Management, told BI that the upgrade super cycle isn't completely off the table, but it may not happen in 2025.
Munster said he believes Apple Intelligence will "play a big role" in a super cycle that could take place in the last half of fiscal 2025 or in fiscal 2026.
"They still haven't put all the pieces in place yet," Munster said.
He added that there's "a lot of work to do" to get to a super cycle of iPhone upgrades.
Its fiscal fourth-quarter 2024 earnings period ended less than two weeks after the iPhone 16 came out, so it was too early to tell how revenue would be impacted by Apple Intelligence. Still, investors will get a better view with it reports Q1 2025 data on January 30.