Wall Street pros are getting excited about Apple and the AI smartphone era, because they know how this kind of thing plays out. When the replacement cycle gets shorter, Apple's share price gets bigger.

Historically, the shorter the cycle, the better Apple’s stock does, relative to the overall S&P 500 index.

And the team at Morgan Stanley thinks this time will be no different.

iPhone sales generally come down to three key factors: first-time smartphone buyers, upgrades by existing users, and market share gains or Android switchers. Goldman Sachs estimates that upgraders account for about 67% of those sales, switchers for 30%, and first-timers for less than 5%. In other words, replacement is where the money is.

The official launch of Apple Intelligence (“AI”, those clever devils) is expected to significantly speed up Edge AI development in smartphones and spur the development of more killer apps, which will have iPhone sales chirping in a way that typically only happens one to two years after a new tech breakthrough. What’s more, the increasing demand brought by this new AI functionality will likely also give Apple more pricing power, which could potentially make even the 15 Pro Max seem like a bargain.

Now, Apple’s share price has lagged most of its Magnificent Seven sisters over the past couple of years, but it’s been catching up quickly since its big AI announcement. And it’s not just the replacement factor that’s got investors excited: they’ve grown increasingly nervous about some of the tech giants’ massive AI infrastructure spending plans. And on that front, Apple stands out: it’s opting to partner with OpenAI, saving it billions in buildout costs – which could be a very savvy call.