The integration of AI into Apple's (NASDAQ:AAPL) ecosystem is expected to fuel growth in its installed base and increase the value of its hardware and services, setting the stage for a multi-year upgrade cycle, analysts at CFRA Research said Tuesday.
At the 2024 Worldwide Developers Conference earlier this year, Apple unveiled several major updates along with Apple Intelligence. This will bring the biggest-ever upgrade to Siri, which will be integrated with free ChatGPT access.
Apple emphasized the personalization benefits of AI combined with consumer data, while highlighting privacy with its new Private Cloud Compute platform, running on Apple servers.
Apple Intelligence will be available on iPhone 15 Pros, iPads and Macs with M1 or later, and the upcoming iPhone 16. The AI integration is expected to improve Apple's ecosystem with features like a smarter Siri, rewriting, summarization, Genmoji, and an image wand, among others.
But perhaps most importantly, it creates “the potential for developers to create disruptive apps in the years to come,” analysts at CFRA Research noted.
“That makes us believe that AI will be more evolutionary than cyclical and should create a multi-year upgrade cycle,” they added.
“The fact that AI capabilities will be added across international markets over time further supports our view that the benefits to the entire installed base will be spread out over time.”
Analysts also point out that nearly 90% of Apple’s current installed base won’t have access to the new AI features this fall, which they believe will push consumers to consider upgrading to an iPhone 16 rather than opting for alternatives.
CFRA projects 5% unit growth for the iPhone 16 cycle and 3% for the iPhone 17 cycle in 2025, driven by AI-driven upgrades. They also see 2026 as a potential growth year, with the possible launch of a foldable iPhone, signaling three consecutive upcycles after two years of stagnation.
Initially, Apple Intelligence will be available only in U.S. English, with plans to expand to other languages over time.
While Apple hasn’t provided specifics on the international rollout, CFRA expects it to be staggered throughout the iPhone 16 cycle. The firm also cautions that regulatory issues in China and Europe could lead to significant delays in these regions.