The financial services firm Morgan Stanley has published a new report asserting that on-device artificial intelligence (AI) capabilities will spark a smartphone industry turnaround, with volumes recovering as early as 2024. The analysis runs counter to warnings of prolonged mobile hardware slumps akin to the PC market.

Morgan Stanley anticipates that the global smartphone shipments will bounce back by nearly 4% next year, followed by a 4.4% increase in 2025. The investment bank credits emerging edge AI features within phones as the catalyst for unlocking fresh consumer demand after recent declines.

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On-device AI promises abilities ranging from enhanced computational photography to voice assistance without sacrificing privacy. With hardware advancing to support robust applications, Morgan Stanley sees a new wave of innovation attracting users to upgrade their devices to get access to this ground-breaking technology.

Early indicators of promising traction arise from Chinese phone makers integrating proprietary AI chips. For example, Vivo’s new X90 with AI imaging saw explosive domestic sales, outshipping flagship models without AI by six-fold. Similarly, Xiaomi touted the outstanding sales for its AI-enhanced Xiaomi 13.

Morgan Stanley suggests that these early data points confirm that consumer appetite for practical AI capabilities directly on devices is accelerating. Analysts from the firm expect that developers will leverage edge AI trends to deliver more impactful user experiences.

Killer Apps Critical for Driving Adoption

morgan stanley predicts rebound on smartphone shipments in 2024
Source: Goldman Sachs

The report acknowledges a lack of visibility on which exact “killer application” will catalyze edge AI’s mainstream breakout moment. However, it references historical examples like Internet Explorer and mobile social/ecommerce apps emerging 1 to 2 years after the underlying technological milestones.

On this premise, Morgan Stanley proposes that the generative AI chatbot Copilot from Microsoft (MSFT) as a potential indicator for edge AI’s killer app timeframe. It believes that Copilot’s widespread PC integration highlights growing public receptivity towards on-device AI.

If consumer-facing implementations inspire confidence in the practical uses of edge AI, developers should respond with transformative smartphone apps. However, the exact tipping point remains hard to identify.

Differing Views on Smartphone Trajectory

Morgan Stanley’s upbeat volume projections contrast with pervading gloomy forecasts of permanent mobile hardware contraction. Critics draw parallels to personal computing, where saturation and replacement cycles dragged PC shipments despite software improvements.

However, analysts from MS contend that smartphones continue to be differentiated through ever-expanding utility catalyzed by AI, mobility, and platform advancements. Moreover, they cite tablets and smartphones continually gaining share from PCs since 2011, capturing incremental use cases rather than facing outright substitution.

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Unless new categories like augmented reality accelerate disruption, Morgan Stanley feels that smartphones have room for sustained relevance in serving users’ daily productivity and entertainment needs. It sees edge AI prolonging lifecycles rather than hastening obsolescence. Thereby historical patterns may prove misleading when extrapolating future trajectories.

Gauging the Impact of On-Device AI

Morgan Stanley’s positioning enhanced on-device AI as the savior for reinvigorating smartphone upgrade activity carries enormous sector-wide implications. The innovation promises to unlock untapped utility still latent within ever-present personal mobile devices.

If edge AI manages to usher in the next defining platform shift that captivates consumers, demand trends may again realign towards expansion rather than contraction. Developers would probably focus on creating great app experiences that make these AI-enabled capabilities more attractive. This will force device makers to deliver more powerful hardware.

However, the technologies remain nascent and their capacity to be monetized remains relatively uncertain. The addressable market also spans billions of users and this creates compelling excuses to delay upgrades unless applications prove to be irresistible. Thereby Morgan Stanley’s optimism isn’t guaranteed either, although early indicators seem promising.

For device manufacturers, the edge AI opportunity offers fresh avenues for differentiating technical specifications and features as commoditization pressure builds. However, its influence depends wholly on igniting complementary software innovation that resonates with the mass market.