Morgan Stanley Predicts Smartphone Sales Surge Driven by AI Advancements

Smartphone sales are poised for a resurgence beginning in 2024, countering increasing concerns about a prolonged downturn in the mobile sector, as highlighted in reports from Goldman Sachs and Morgan Stanley.

According to Morgan Stanley’s analysis, global smartphone shipments are expected to grow by nearly 4% in 2024 and by 4.4% in 2025. This positive trend is particularly promising when compared to the multi-year declines seen in the PC industry.

The revival of smartphone sales is largely attributed to the introduction of advanced on-device AI capabilities, which are anticipated to generate new consumer demand. Morgan Stanley has revised its projections for 2025 smartphone volumes, indicating that innovations in edge AI could enhance functionalities such as photography and speech recognition while ensuring user privacy.

Major smartphone manufacturers like Apple, Vivo, Xiaomi, and Samsung are already exhibiting optimism around AI technology. For instance, Vivo’s latest model, the X100, featuring on-device AI, has experienced remarkable sales growth, and Xiaomi reported six times the usual sales volume for its AI-enhanced flagship device. Furthermore, Samsung plans to introduce generative AI in its 2024 models, enabling ChatGPT-like features that operate directly on devices rather than relying on cloud processing.

Morgan Stanley's report notes, “The main hesitation is the lack of clarity regarding when the ‘killer app’ will emerge. Typically, after significant breakthroughs, a game-changing application surfaces within 1-2 years, as seen in the evolution of desktop and mobile internet.” While the timeline for an edge AI killer app isn’t guaranteed to align with this pattern, the rise of Microsoft’s CoPilot as a prospective AI solution for PCs may lay the groundwork for a similar innovation in smartphones.

Goldman Sachs anticipates that smartphone shipments in 2023 will decline by 5% year-over-year, totaling approximately 1.148 billion units, down from 1.206 billion the previous year. This marks the second consecutive year of decline following substantial drops in 2022. Despite this downturn, Goldman Sachs believes that momentum will begin to build in 2024 and 2025, spurred by new product launches. The firm predicts a 3% increase in global shipments, bringing the total to 1.186 billion in 2024, followed by a 5% rise to 1.209 billion in 2025.

“With the holiday season approaching and ongoing restocking efforts, combined with improved supply chain insights regarding market recovery, we have adjusted our 2023-2025 smartphone shipment forecasts upward. However, we still expect low single-digit growth in 2024-2025, with global shipments gradually returning to 2022 levels by 2025,” Goldman Sachs analysts noted.

This optimistic outlook for mobile devices stands in contrast to prevailing beliefs that mature smartphones encounter similar challenges as personal computers did over the past decade. Yet, Morgan Stanley asserts that the current replacement cycles and evolving use cases continue to favor mobile phones.

“Since 2011, tablets and smartphones have been gaining market share from PCs. The decline in PC shipments has stemmed from the rise of these new devices rather than a decrease in overall demand. We don’t foresee smartphones facing imminent substitution threats from emerging technologies such as AR/VR. Smartphone replacement cycles are shorter due to their more frequent use and smaller battery sizes, while their applications are continually expanding, particularly with the innovations offered by edge AI.”