Investing.com -- Apple (NASDAQ:AAPL)’s latest AI initiative, Apple Intelligence, appears to have provided a small boost to iPhone demand in the US during the December quarter, according to Morgan Stanley (NYSE:MS). However, the impact was limited and largely tied to discounted older models rather than the latest iPhone lineup.
"We did see that the markets where we had rolled out Apple Intelligence, that the year-over-year performance on the iPhone 16 family was stronger than those where Apple Intelligence was not available,” said Apple CEO Tim Cook during the company’s fiscal Q1 2025 earnings call.
IDC data cited by Morgan Stanley shows that iPhone 15 Pro/Pro Max and iPhone 16 models in the US—where Apple Intelligence was available—outperformed the rest of the world by 3.5 percentage points in unit shipments in the December quarter.
Revenue outperformance was more modest, with US Apple Intelligence-compatible iPhones performing just 50 basis points better than the rest of the world.
However, the report cautions that this outperformance was "almost entirely due to US consumers accelerating purchases of the discounted 1-year-old iPhone 15 Pro/Pro Max."
In contrast, the iPhone 16 family performed better internationally than in the US, growing 4-9% year-over-year compared to a flat performance domestically.
Looking ahead, Morgan Stanley expects iPhone demand in emerging markets (EMs) outside China to remain strong, with India leading growth.
In non-China EMs, iPhone shipments jumped 4% year-over-year in the December quarter, fueled by strong demand in South Asia.
iPhone revenue growth in EMs outside China was even stronger, rising 10% year-over-year. In contrast, developed markets saw a decline of 2-5% year-over-year, while China experienced a 9% drop.
But, Morgan Stanley analysts expect the iPhone demand trends in China to improve in the March quarter, driven by government subsidies tailwinds.
“Since early January, the device subsidies in China have expanded nationally, with smartphones, tablets, and smartwatches priced under ~$820 eligible for 15% off," analysts highlight. This could improve Apple’s sales trajectory in China in the coming quarters.
“This makes all iPhone models except the 16 Pro/Pro Max eligible for the subsidies, and it’s our understanding this program could last through 2025,” they added.
Morgan Stanley also previewed the upcoming iPhone SE4, which it expects to launch soon. The Wall Street firm forecasts 3 million shipments in the March quarter and 15 million in fiscal year 2025.
Priced at $499, 16% higher than its predecessor, the new model will feature key upgrades, including a 6.1-inch AMOLED display, Face ID, an A18 Bionic chip, and Apple’s in-house 5G modem.