Think of it like this: Apple just announced a bunch of shiny new AI features, and roughly 1.3 billion iPhones in the wild don’t have the brains to run them. Morgan Stanley thinks that gap between what Apple is promising and what existing hardware can deliver is about to create one of the largest device upgrade waves in the company’s history.

Analyst Erik Woodring laid out the case in a note on June 9, arguing that the market is sleeping on just how many people will need new phones to access Apple Intelligence. His word for the opportunity: “underappreciated.”

The numbers behind the upgrade thesis

Here’s the core of Woodring’s argument. Apple Intelligence, the company’s AI platform built around a revamped Siri and a suite of on-device machine learning features, requires a minimum of 12GB of unified memory to function. That’s a hardware floor, not a software toggle. You can’t download your way to compatibility.

Of the 1.3 billion active iPhones that fall short of that memory threshold, approximately 850 million can’t run Apple Intelligence at all. Not partially, not in a degraded mode. Just flat-out incompatible.

In English: more than half of Apple’s entire installed base is locked out of the company’s flagship AI features unless they buy a new phone.

Woodring isn’t just hand-waving about potential demand. He’s built his projection into a concrete stock thesis. Under what he calls a favorable AI scenario, where the rollout goes smoothly and adoption accelerates, he sees Apple’s stock reaching $440.

Morgan Stanley’s evolving Apple bet

This isn’t a sudden change of heart from Morgan Stanley. The firm has been building its bullish Apple-AI thesis for roughly two years now.

Back in mid-2024, Morgan Stanley named Apple a top pick and raised its price target from $216 to $273. The reasoning then was the same reasoning now, just with less granular data: AI would drive hardware refreshes, and hardware refreshes would drive services revenue.

Woodring’s analysis also pushes back against a prevailing narrative that Apple has fallen behind in the AI race. While competitors like Google and Samsung have been shipping on-device AI features for multiple product cycles, and while Apple has faced criticism for delays in its AI deployment timeline, Woodring characterizes Apple’s approach as a “polished AI platform” with a “clear vision” for application.

What this means for investors

The $440 price target under Woodring’s optimistic scenario represents significant upside from current levels. But that projection hinges on several assumptions going right simultaneously: Apple Intelligence needs to actually work well, Siri’s revamp needs to be compelling enough to drive demand, and the global consumer economy needs to cooperate.

Upgrade cycles driven by hardware requirements have a built-in ceiling that’s often overlooked. Not everyone with an incompatible iPhone is going to rush out and buy a new one. Many of those 850 million devices are in markets where consumers upgrade far less frequently, or where the price of a new iPhone represents a much larger share of disposable income.