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Morgan Stanley predicts Apple could hit $3 trillion on services shift

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Yahoo Finance tech reporter Dan Howley breaks down Morgan Stanley's forecast on Apple's value potential as it pivots more towards service subscriptions.

Video Transcript

[MUSIC PLAYING]

- Apple shares are off just about 12% since the start of the year. But don't bet against the tech giant. Morgan Stanley saying Apple can get back on track and hit $3 trillion on its services shift. Tech reporter Dan Howley is here to break this down. Dan, briefly earlier this year, Apple did cross that $3 trillion market cap level, although we did see the stock retreat. What do you make of this call from Morgan Stanley and the importance of services?

DAN HOWLEY: Yeah. I mean, look, this is the conversation that's been going on with Apple for some time now, right? This service is [INAUDIBLE], and it kind of started as we had seen iPhone sales start to kind of level off. They weren't as explosive as perhaps when the iPhone 6 or iPhone 4 was out, where we just saw people go in and go nuts. You know, there's no more lines outside of the Apple stores, or at least no massive lines. People aren't barreling through each other to get a new phone at this point.

But there are still a billion iOS devices out there. And so that means a massive built in loyal audience. And so that's where this note comes from. Basically saying, look, you know, Apple has this wrapped audience of people who are using their products. They're already signing up for things like AppleCare, or iCloud, iCloud Plus, things like that. So they can push that further out, and then try to really optimize for those kinds of subscription services.

And really, part of the note points to the fact that, Apple now, instead of listing average selling price ASP, or units, is they're now listing the number of people that they reach. So that's part of this transition. And then they also go on to list five different ways that they can be successful as a subscription business. And they talk about, you know, obviously, stable end markets. Apple users are going to continue to be Apple users.

The expanding customer spend. So that means people going out buying those different products, whether that's physical, in the sense of the devices, which then leads to things like Apple Health, things along those lines. And then the monthly and annual pricing that they can then push out. So they have so many opportunities here to bring in people. Yeah, I mean, look--

- It's the Apple ecosystem and we're all addicted to it.

DAN HOWLEY: It's true. And I'm a Cloud subscriber, iCloud Plus subscriber, Fitness Plus subscriber, Apple TV Plus--

- Apple Music, Apple TV, you've got them.

DAN HOWLEY: Not Apple Music though. Spotify is better.

- I've got it. I've got it too. Another--