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Apple streaming and payment app growth are 'the hearts and lungs' of the stock: Analyst

Wedbush Managing Director and Senior Equity Analyst Dan Ives joins Yahoo Finance Live to assess Apple's device software on news of cybersecurity flaws, device updates, and the growth in Apple's other key sectors.

Video Transcript

- Folks, stop ignoring that Apple update. We know you do it. I'm as guilty as anyone. You might now be vulnerable to hackers. What you need to know and how investors are anticipating the release of the upcoming iPhone 14 in just a couple of weeks, Wedbush Securities Dan Ives with us now on all things Apple.

Dan, we always ignore these update reminders. I don't know about you. I do. How significant is it? What do we need to know?

DAN IVES: Yeah, this is one tonight, before getting into your weekend festivities, I would definitely do the update. I think, look, Apple has been extremely cautious in terms of making sure consumers-- if there's a vulnerability, and there appears to be one, to really update the software for Macs, for iPhones across the board. Look, and that's been one of their core DNA. They're able to see these things before they happen. Every consumer should update.

- Dan, what do you think this means, though, from an investor perspective? Yes, Apple is off just about 1 and 1/2% today. But we're seeing selling across the broader market. From an analyst perspective, I guess, how worrisome is this, if at all?

DAN IVES: Yeah, I think this is essentially background noise, because Apple, from a vulnerability perspective, they'll put out threats and updates. But there's really been no vulnerability accessed here. And I think that continues to be what's different about Apple's ecosystem versus others. I mean, they've been able from a privacy, from a security perspective to be one step ahead of the bad guys.

And this all leads into the iPhone upgrade cycle, which we believe September 7. You know, I think they are in just a massive position of strength going into the next year. And I think that's why the stock is called 3%, 4% below odds.

- Stocks up 12% in the last month. Let's talk more about that Apple 14 coming. I think it's September 7. What is demand like, and have they overcome all the supply chain issues?

DAN IVES: Yeah, look, I think that's the key. I mean, Cook essentially is-- I almost call him a superhero, like having a cape on his back. The fact that he's been able to navigate him in Cupertino, the zero COVID shutdowns that we saw in April and May, and now being able to launch iPhone 14, which looks right on schedule.

I can tell you from our Asia checks, looks like 90 million units out of the gate. That's flat with iPhone 13. Put that together, along with higher [? ASPs, ?] I think Street's ultimately actually going to have to raise numbers over the next six months, rather than cut. And I think that's why the stock's done what it has. As I'll call, many were yelling fire in a crowded theater going into the quarter.

- So Dan, what are you looking at, then, from a demand standpoint. I know you're saying there are a number of devices specifically over in China that need to be upgraded. But we are heading into a slower economic environment. We already are seeing some consumers pull back on spending. Is Apple one of the names that you don't think will really be hit too hard, then, by inflation?

DAN IVES: Look. Of course, they'll be hit. And around the edges. But look, I mean, if I look at the iPhone 14, we think this is a $100 price increase for the Pro and the Pro Max, first time since 2017. So inflation, higher component costs, still have to put that in. But it all comes down to, really, this number.

I mean, our estimates show 240 million of a billion iPhones worldwide have not upgraded in 3 and 1/2 years. And that's really the headline. I mean, around the edges, they could see some demand wane. But ultimately, that golden install based at Cupertino navigates this category 5 storm that we're seeing in terms of economic clouds.

- Seana's one of those waiting to upgrade to the 14.

- I am.

- That's part of the reason you have the $220 price tag on it-- price target, rather. Dan, a really interesting story we discussed yesterday in the Wall Street Journal about Apple Pay and how prevalent it is now. 75% of all iPhones have it activated.

90% of retailers are accepting it. I know it's only about 1% of their revenues. But in terms of a growth plan down the road, how significant might Apple Pay be?

DAN IVES: Look, I mean, it's a key topic, because we look at the services business. Services business next year on target to be $90 billion, and we have $100 billion in 2024. You look at Apple Pay, and you look at what we see across-- when we're talking about, really, across the board from Apple TV to Apple Music, Cloud, the App Store. And that's really some of the hearts and lungs of the Apple services story. They're going to continue to penetrate that, expand that moat, and really put that iron fence around their backyard, as this just continues to really be the key of the Apple growth story on that services side.

- And Dan, the event that we're looking forward to in just a couple of weeks, it's actually being held a week earlier than when Apple typically holds the event. Any significance there?

DAN IVES: Mind-boggling that it's a week early, because if we go back to April, May, investors that I talk to-- like, if they can hold it by November, December, that would be unbelievable. The fact that they're going to have this September 7, right after Labor Day, again, it's a Hall of Fame performance by Cook. And it just continues to show there's a Rock of Gibraltar name. And even though in this storm-- many could argue the valuation, I think you'll get the services business pent up demand with iPhone 14 around the corner. That's why you buy the stock.

- Dan Ives, always great to speak with you. Have a great weekend. Thanks so much for joining us.