Citi Apple’s AI Hopes Hinge on Driving Upgrade Cycle

Apple’s AI Gamble: Will it Boost iPhone Sales?

CitigroupPredicts a Mixed Impact on iPhone Sales in the Short Term, But a PotentialSurge in 2025

New York, October 29, 2024 – Apple’s much-anticipated AIfeatures, finally rolled out with the iOS 18.1 update, are a significant milestone for the tech giant, but their impact on iPhone sales remains uncertain.While the initial release may offer a boost to the recently launched iPhone 16 series, Citigroup analysts believe the true test lies in whether the AI features can drive a significant upgrade cycle.

The success of Apple’s AI hinges onits ability to stimulate iPhone demand, said Atif Malik, a Citigroup analyst, in a recent report. Investors should closely watch for signs of this.

The initial release of AI features in iOS 18.1 includes tools for summarizing andrewriting text, image cleanup, email and notification summaries, a redesigned Siri typing interface, and transcription summaries in Notes. While these features are a step in the right direction, Citigroup predicts a slight dip in iPhone sales in the third and fourth quarters of 2024 due to the delayed release of some key AI features.

We expect iPhone sales to be 2-3% below market expectations in Q3 and Q4 2024, Malik said. However, the full rollout of AI features in spring 2025 could trigger a wave of upgrades.

Citigroup maintains its forecast for iPhone sales in2024 and 2025, predicting a 2.6% decline to 225 million units in 2024 and a 9% increase to 246 million units in 2025. The firm estimates iPhone 16 sales to reach 83million units this year.

The report highlights that the current iOS 18.1 update only offers a limited set of AI features. A more comprehensive update, iOS 18.2, is expected in December, including features like ChatGPT integration. However, features like Siri actions and personal context will be delayed untilspring 2025.

The report also mentions the anticipated release of the iPhone SE 4 in spring 2025, which is expected to support Apple’s AI and feature a USB-C port, OLED display, and A18 chip. This suggests Apple is continuing to expand its product lineto attract a wider audience.

The Bottom Line: While Apple’s AI features are a significant development, their impact on iPhone sales remains uncertain. The initial release may offer a short-term boost, but the long-term success hinges on the features’ ability to drive a significant upgrade cycle in 2025. Investors should closely monitor the situation for signs of this.

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