Apple’s AI-Driven Super Cycle: A Delayed, But Promising Future
Recent earnings reports from major US carriers, Verizon, AT&T, and T-Mobile, revealed a surprising trend: declining smartphone upgrade rates, casting a shadow on the anticipated AI-driven “super cycle” for Apple’s iPhone. Despite this initial slowdown, analysts like Rosenblatt’s Barton Crockett remain bullish on Apple, predicting a significant surge in sales fueled by upcoming AI features and the launch of the iPhone 17 in 2026. While the immediate future looks slightly less vibrant than initially projected, the long-term outlook remains exceptionally positive, suggesting investors may benefit from a wait-and-see approach before the stock fully reflects the upcoming AI-driven boom.
Key Takeaways: Apple’s AI-Fueled Future
- Declining Upgrade Rates: Major US carriers reported lower-than-expected smartphone upgrade rates, defying initial predictions of a robust “super cycle.”
- Delayed Super Cycle: The anticipated AI-driven surge in iPhone sales is now projected to fully materialize in 2026, primarily driven by the iPhone 17 and Apple’s advanced AI capabilities.
- Analysts Remain Bullish: Despite the current slowdown, analysts maintain a positive outlook for Apple, with Rosenblatt reiterating a Buy rating and a price target of $261.
- Phased AI Rollout: Apple is gradually integrating its AI features, starting with limited functionalities in iOS 18.1 and expanding with ChatGPT integration and advanced capabilities in iOS 18.2.
- Strong Underlying Growth: While upgrade rates dipped, Apple still saw a 3.5% year-over-year increase in smartphone shipments in Q3 2024, illustrating underlying strength in the market.
The Unexpected Slowdown: A Deeper Dive into Carrier Data
The third-quarter 2024 earnings reports from Verizon (VZ), AT&T (T), and T-Mobile (TMUS) painted a nuanced picture of the smartphone market. While all three companies reported overall net postpaid phone subscriber growth, their upgrade rates told a different story. AT&T’s upgrade rate plunged to 3.5%, down from 3.9% a year ago; Verizon’s fell to 3.0% from 3.4%; and T-Mobile’s slipped slightly to 2.6% from 2.7%. This represents a significant deviation from the anticipated “super cycle” and its associated boost in upgrade numbers.
Analyzing the Discrepancy
The discrepancy between overall subscriber growth and declining upgrade rates highlights a shift in consumer behavior and purchasing patterns. One factor contributing to this could be Apple’s strategy of offering more installment plans for iPhone purchases. This could be mitigating the reliance on carrier subsidies, traditionally a strong driver of upgrade cycles. The data underscores the need for nuance when assessing market trends, with focusing solely on subscriber numbers potentially obscuring significant insights.
Apple’s AI Strategy: A Gradual, but Powerful, Unveiling
Apple’s response to the slower-than-expected upgrade cycle is a strategic, phased release of its AI capabilities. The company is not banking solely on immediate hardware sales but building anticipation and driving long-term growth with a software-first approach. The initial rollout, iOS 18.1 (launched October 28th, 2024), introduced limited AI features, laying the groundwork for a more substantial update with iOS 18.2. This second iteration promises ChatGPT integration and more advanced features like Visual Intelligence and Genmoji, expected to considerably boost customer engagement and, correspondingly, future sales.
The Long-Term Vision
This phased approach reflects Apple’s long-term vision: to establish a robust ecosystem of AI-powered services and features that will not only drive iPhone sales but also create valuable data and revenue streams beyond the initial hardware purchase. This shift toward a less hardware-centric and more service-based strategy positions Apple for sustained growth across the broader technological landscape.
The Analyst Perspective: Maintaining Optimism
Despite the initial slowdown, analysts remain largely optimistic. Rosenblatt Securities analyst Barton Crockett reiterated a Buy rating on Apple (AAPL), setting a price target of $261. This optimistic forecast is largely based on the expectation that the AI features will significantly boost iPhone sales, primarily in 2026 with the launch of the iPhone 17. Crockett’s forecast for the fourth quarter of 2024 includes revenue of $94.83 Billion and earnings per share (EPS) of $1.62. This outlook suggests confidence in Apple’s ability to navigate the current market uncertainty and capitalize on its future AI investments.
Beyond the Current Quarter
While the muted iPhone revenue growth of 3% in September 2024 wasn’t in line with the anticipated super cycle, the forecast for fiscal year 2025 is far more encouraging. Analysts predict a more robust 4% growth for three out of the four quarters, jumping to 7% in the March 2025 quarter thanks to the introduction of a new iPhone SE. This steady growth trajectory emphasizes the projection that the AI-driven super cycle will have a delayed, not denied start.
The Bigger Picture: Global Smartphone Market Trends
The US carrier data, while insightful regarding the domestic market, is only one piece of a larger puzzle. Global trends paint a more complete picture. IDC reported a 3.5% year-over-year increase in Apple smartphone shipments during the third quarter of 2024, placing this within the context of a global smartphone market that saw a 4% increase. This underscores that while the US upgrade market presents a complex situation, Apple maintains significant global market share and demonstrates growth potential outside of just the US carrier network. The divergence between the U.S. market, with its decline in carrier-subsidized upgrades, and the more positive global figures is important to note as it points towards the diverse nature of the global smart phone market and the evolving role of carrier subsidies as growth drivers.
Conclusion: Patience and Perspective
The current slowdown in US carrier upgrade rates presents a temporary setback for the anticipated AI-driven “super cycle” for Apple. However, the longer-term prognosis remains significantly positive. Analysts’ bullish outlook, coupled with Apple’s strategic rollout of AI functionalities and its continued strong global growth, suggests that investors take a long-term approach. The delayed super-cycle is increasingly likely to still materialize, showcasing the potential benefits of sustained patience and prudent decision-making in the face of short-term market fluctuations. The data suggests a careful balancing act: acknowledging current challenges while maintaining a focus on the transformative potential of Apple’s upcoming AI integrations.
AAPL Price Action: At the time of publication, Apple’s stock price was down 0.22% at $230.30. This minor fluctuation is considered a normal market fluctuation and does not appear to signal a bearish shift in the stock’s long-term performance based on the positive statements from analysts.
