Zhitong Finance APr learned that Wall Street financial giant Morgan Stanley lowered the forecast for the USA’s Consumer Electronics leader in a research report released on Wednesday. $Apple (AAPL.US)$ However, it still maintains a "Shareholding" rating for Apple stocks.

The downgrade is mainly due to the significant delay in the launch of the key new features in the so-called Apple Intelligence module— the next generation of the more advanced AI-driven Siri digital voice assistant, which is expected to greatly impact the upgrade cycle of Apple iPhones. Additionally, the tariff costs caused by the new round of trade tensions between USA and China will also seriously negatively affect Apple's profitability.

Morgan Stanley has long been bullish on Apple, but as Apple’s pace of updates to Apple Intelligence has been too slow— especially as the initial version of Apple Intelligence has yet to be launched in many non-English speaking countries— it seems that Morgan Stanley's (hereinafter referred to as "Morgans") analysis team’s long-term bullish enthusiasm for Apple Stocks is gradually fading. So far this year, due to the stagnation of the launch of Apple Intelligence functionalities in most non-English speaking countries and the very slow upgrades in English markets like USA, along with a new round of global trade wars initiated by a self-cannibalizing Trump, the expectations for Apple's fundamentals and valuations have been under pressure, leading to a nearly 15% drop in its stock price this year, far behind the S&P 500 Index and the Nasdaq Composite Index.

Morgans pointed out in the research report that the delayed launch of the upgraded Siri digital voice assistant will directly affect the slope of the future iPhone sales growth curve and suppress the upgrade cycle, thus negatively impacting the company’s performance; meanwhile, the pressure from tariff costs will also have a negative impact on Apple's profit margins and profitability.

However, regarding Morgans' latest target price of $252, there is still relatively positive upside potential for Apple's stock price within the next 12 months, and the agency reiterated its "Shareholding" rating for Apple Stocks. As of the close of trading on Wednesday, Apple’s stock price fell 1.75% to $216.980.

Morgans stated in the research report that the significant delay in the launch of the more advanced AI-driven version of the Siri digital voice assistant results in Apple lacking strong functional drivers for consumers to upgrade their iPhone series products on a large scale in the company's fiscal year 2026 (i.e., FY26). This delay significantly impacts Morgan Stanley's previous expectations for Apple's iPhone shipments for the calendar years 2025 (i.e., CY25) and 2026 (i.e., CY26), hence it has lowered its shipment volume expectations by 1% to 5%, respectively:

CY25 (2025): Expected shipments of 0.23 billion units (indicating that Morgan Stanley expects it to remain flat year-on-year).

CY26 (2026): Expected shipments of 0.243 billion units (indicating a potential year-on-year growth of 6%), which suggests that both expectations have been revised downwards due to a slowdown in the consumer replacement cycle.

Morgan Stanley's analysis team stated that the USA-China tariff factors will significantly increase Apple's operational cost pressures, considering that in 2025, Apple's Consumer Electronics product line will face an additional input/import cost of approximately 2 billion USD to cope with the effects of the USA-China tariffs. Although it is assumed that Apple can mitigate most of the tariff costs through negotiations with the Trump administration, it is difficult to completely offset these additional costs without widespread tariff exemptions.

The combined effects of the above factors lead Morgan Stanley to downgrade its overall revenue and EPS (EPS) forecast for Apple Inc. for the fiscal year 2026 by 5%-6%. The latest forecast shows that the institution predicts FY2026 revenue is approximately 436 billion USD, with EPS expected to be around 8 USD, which is 1% to 2% lower than the market consensus forecast (previously estimated at 8.52 USD); based on a PE of 30 (previously 32), this drives Morgan Stanley's analysis team to lower Apple's Target Price to 252 USD.

Why is the new generation of more advanced Siri digital assistant so important for Apple's performance growth?

The new AI voice assistant feature of Siri, originally planned to debut in the iPhone 16 series, has been delayed due to the slow development progress of the AI technology. Apple stated in a statement that it is expected to be gradually rolled out over the next year. Nevertheless, Apple has not provided a specific timeline. The statement read: "Siri's personal context understanding, screen awareness, and in-app deep interaction features are under development and will be provided in future software updates."

In the vision of the Siri update iterations among Apple fans, under the enhancement of cloud and edge AI large models, Siri's positioning may no longer be a clumsy formal voice assistant. By combining cloud AI computational resources and edge generative AI capabilities, Apple's iPhone models are expected to achieve a more personalized 'private AI assistant' that meets user needs, similar to the ‘omni-functional AI companion’ depicted in the movie 'HER.' Apple has stated that the updated Siri voice assistant will be able to use personal information to answer questions and perform tasks across various applications.

Integrating AI large models with PCs, Smart Phones, and other Consumer Electronics terminals comprehensively to create large models capable of offline running inference performance on local devices, while also being able to leverage vast cloud AI computational resources to cater to deeper personal needs of users has become the core content of the ‘AI planning blueprint’ for many global technology companies. For example, Qualcomm's newly released Snapdragon 8 Elite chip claims to have the world's fastest smartphone CPU while significantly enhancing the performance of Smart Phone chips for handling massive AI inference tasks; the A18 Pro in the iPhone 16 Pro is equipped with a 16-core neural engine capable of performing 35 trillion operations per second (35 TOPS), significantly boosting the processing speed and efficiency of AI tasks; the A18 Pro CPU features larger cache and a 20% increase in energy efficiency, making it suitable for running complex AI tasks.

After the news broke about Apple's announcement of an updated version of Siri, another Wall Street firm, Citigroup, stated that without the push from AI, it would be difficult for Apple to drive the upgrade cycle of the iPhone, especially since the iPhone remains Apple's largest source of revenue. "Given the delay of the highly anticipated major update to Siri, we believe Apple will miss the opportunity to accelerate the (user) upgrade cycle this year," Citigroup wrote in a recent Research Report.

According to smartphone survey data from Morgan Stanley's AlphaWise, Apple's next-generation, more advanced Siri digital assistant is widely regarded by consumers as the "number one AI application" driving iPhone upgrades. AlphaWise survey results indicate that "gaining more advanced AI capabilities" has entered the top five drivers for smartphone upgrades for the first time. Among these, the "upgraded Siri digital assistant" is the most interesting Apple Intelligence feature for the global potential iPhone 16 buyer group, surpassing the importance of other AI features such as image-related optimizations and ChatGPT integration.

AlphaWise's survey results also show that about 50% of existing iPhone users admitted that the postponement of some key features of the Apple Intelligence module negatively affected their decision not to upgrade to the iPhone 16.

Although other factors may also support sales growth in the fiscal year 2026, the Morgan Stanley analysis team predicts that without "killer AI applications," the pace of iPhone upgrades is not expected to be as significant as previously anticipated.

Editor/lambor