iPadOS 16.2 Beta Adds Support for Using Stage Manager With External Displays on M1 and M2 iPads
Prior to the release of iPadOS 16, Apple tweaked Stage Manager to remove a feature that allowed it to work with external displays, a move made to expand Stage Manager support to A12Z and A12X iPad Pro models.

With the new beta of iPadOS 16.2 provided to developers today, Apple has re-enabled external display support on iPads that have an M1 or M2 chip. While Stage Manager is functional on older iPad Pro models without Apple silicon chips, these iPads will not be able to use Stage Manager with an external display.
External display support allows for up to eight apps to be used with Stage Manager, rather than the four available on the iPad alone.
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