Apple’s ambitious bet on Apple Intelligence has yet to deliver the anticipated “golden upgrade cycle” that analysts predicted would drive massive iPhone sales. The tech giant introduced its AI venture, Apple Intelligence, during its Worldwide Developers Conference in June 2024, with the feature launching to eligible iPhones in October. However, the limited availability—restricted to iPhone 15 Pro models and later—has not generated the consumer excitement Apple hoped for.
Wedbush analyst Dan Ives initially predicted that Apple Intelligence would spark a significant upgrade cycle among iPhone holders, representing a major sales opportunity for the company. Apple positioned the iPhone 16, which launched in September, as the first iPhone designed from the ground up for AI functionality. Tech analyst William Kerwin from Morningstar previously identified AI as Apple’s “biggest story” of 2024.
Despite the initial hype, reality has fallen short of expectations. Craig Moffett, senior analyst at MoffettNathanson, issued a rare “sell” rating for Apple on Tuesday, citing a lack of consumer enthusiasm around AI features. “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 stated.
Sales figures support this cautious outlook. Ming-Chi Kuo, a Taiwan-based analyst renowned for his Apple predictions, reported that the iPhone 16 series sold approximately 37 million units during its first preorder weekend—a 12.7% year-over-year decline compared to the iPhone 15’s launch weekend.
Analysts have been forced to recalibrate their expectations. Morningstar’s Kerwin noted that “the initial excitement from the announcement” has shifted to “expectations for a tepid growth cycle in the first year, and more aggressive expectations for year two.” Gene Munster, managing partner at Deepwater Asset Management, maintains that the upgrade super cycle isn’t entirely off the table, but suggests it may materialize in the latter half of fiscal 2025 or fiscal 2026. “They still haven’t put all the pieces in place yet,” Munster explained, adding that there’s “a lot of work to do” before achieving a super cycle.
The full capabilities of Apple Intelligence remain unreleased, which may explain the muted consumer response. Investors will gain clearer insights when Apple reports its Q1 2025 earnings on January 30, though the fiscal Q4 2024 period ended too soon after the iPhone 16 launch to provide meaningful data on Apple Intelligence’s revenue impact.
Key Quotes
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
Craig Moffett, senior analyst at MoffettNathanson, made this statement when downgrading Apple to a rare “sell” rating. This quote captures the central problem facing Apple: despite significant investment and marketing around AI features, consumers aren’t responding with increased purchases.
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
William Kerwin, tech analyst at Morningstar, explained how analyst sentiment has shifted from initial optimism to more measured expectations. This reflects the reality check the market has experienced regarding AI’s immediate impact on iPhone sales.
They still haven’t put all the pieces in place yet
Gene Munster, managing partner at Deepwater Asset Management, offered this assessment while maintaining that an upgrade super cycle could still occur in late fiscal 2025 or fiscal 2026. His comment suggests that Apple Intelligence’s incomplete feature set may be contributing to weak consumer adoption.
Our Take
Apple’s struggle to monetize AI through hardware upgrades reveals a fundamental disconnect between industry enthusiasm and consumer priorities. While tech analysts and investors have embraced AI as transformative, everyday users appear to need more convincing. This pattern mirrors previous technology adoption curves where initial hype preceded actual utility.
The timing issue is particularly telling—Apple launched AI-branded hardware before delivering complete AI functionality, potentially training consumers to wait rather than upgrade immediately. This strategic misstep could have lasting implications for how tech companies sequence product launches and feature rollouts.
More broadly, this situation underscores that AI must solve real problems for consumers, not just exist as a marketing buzzword. The smartphone market’s maturity means users need compelling reasons to upgrade, and incomplete AI features apparently don’t meet that threshold. Apple’s experience may force the entire industry to reconsider how AI capabilities are packaged, marketed, and delivered to consumers.
Why This Matters
This development represents a critical test case for AI’s commercial viability in consumer electronics. Apple, one of the world’s most valuable companies, made AI the centerpiece of its 2024 product strategy, yet consumers have remained largely unmoved by the offering. This suggests that AI features alone may not be sufficient to drive major purchasing decisions in the smartphone market.
The story highlights a broader challenge facing the AI industry: translating technological capabilities into compelling consumer value propositions. While AI has generated enormous excitement in enterprise and developer communities, mainstream consumers may require more tangible, immediately useful applications before upgrading their devices.
For the tech industry, Apple’s experience serves as a cautionary tale about overhyping AI capabilities before they’re fully developed and integrated. The delayed rollout of Apple Intelligence’s complete feature set may have contributed to consumer hesitation. This could influence how other hardware manufacturers approach AI integration in their products, potentially leading to more conservative marketing strategies and more complete feature sets at launch. The outcome of Apple’s AI gambit will likely shape investor expectations and strategic decisions across the entire consumer technology sector.
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