Apple can hit US$3 trillion on services shift, Morgan Stanley says

APPLE’S pivot to a subscription-like model creates a clear path to a market capitalisation of more than US$3 trillion, according to Morgan Stanley.

While the market still tends to value the iPhone maker as a hardware company, shifting to a "lifetime value" based approach - which takes into account recurring revenues from services - suggests long-term upside to over US$200 per share, or more than US$3 trillion in market value, Morgan Stanley analysts wrote in a note. Apple shares closed at US$153 on Wednesday (Jul 20).

"The Apple business model is shifting from one that maximises hardware shipment growth to one that maximises installed base monetisation," analysts led by Erik Woodring wrote. The tech giant's increasing disclosures on services revenue and the installed user base, and its move away from reporting iPhone units, is evidence of the shift, they added.

Woodring, who rates Apple overweight, said that his lifetime value model assumes that Apple users will spend US$2 per day on Apple products or services, a figure already achieved by US iPhone owners. The current stock price implies a material valuation discount to other tech platforms and software-as-a-service businesses, he said.

Apple briefly hit US$3 trillion in market capitalisation on Jan 3. Shares have fallen 16 per cent since then amid a broader rout for technology stocks, with a combination of higher interest rates and fear of a possible global recession spooking investors. BLOOMBERG