Wedbush: Apple's hardware is the half of it

Of Apple's $1.3 trillion valuation, says analyst Daniel Ives, Services represents $500 to $650 million.

From a note to clients that landed on my desktop Wednesday:

This morning Apple in a release highlighted its services strength on the flagship App Store with customers spending $1.42 billion during holiday season and thus grew an impressive 16% year over year.

Coupling this dynamic with AirPods which we now believe finished the year selling 67 million AirPods units (which was well above our original 56 million estimate) speaks to the underlying strength that Cupertino is having monetizing its golden jewel installed base of 925 million iPhones worldwide heading into FY20 and beyond.

We believe the services business and this linchpin annual revenue stream which is poised to hit $60 billion by FY21 is worth between $500 billion to $650 billion and is a core part of the re-rating that is happening on shares of Apple over the past year. We believe mid teen growth on the services business remains front and center as the core fuel in the engine for Apple as the company has the 1-2 punch of a 5G super cycle and a services business which is now starting to be properly valued by the Street in our opinion.

We continue to believe an upside on iPhone units, services, and AirPods will result in a strong December quarter for Cook & Co, on January 28th after the bell with clear momentum heading into a massive 5G super cycle with currently 350 million iPhone customers in the window of an upgrade opportunity.

Maintains Outperform rating and $350 price target with "bull case valuation scenario" at $400.

My take: Two price targets? Hmmm.

See also: Apple hones its Services messaging. 


  1. Gregg Thurman said:
    Way to go Daniel ! Just this morning I said Services should be half of Apple’s valuation.

    January 8, 2020
  2. Fred Stein said:
    All good stuff.

    While the market won’t see it, Apple is the leading fabless chip company. Thus the hardware (more precisely the device) business deserves a higher multiple.

    What has changed that the market does not see?

    Apple legacy HW biz was built on Apple’s superior integration of other chips into Apple’s OSes. While Intel and Qualcomm play a role, it’s shrinking. Regardless of device category, Apple’s chip designs, deeply integrated with the OS’es and higher layers, keep Apple’s hardware business strong for the foreseeable future. That makes the hardware business a lot more valuable.

    January 8, 2020
  3. David Emery said:
    I respect ‘2 price targets’ like this a lot more than just a single number. TOO MUCH science reporting leaves out error/confidence/uncertainty that exists in the basic research. To me, this is Ives behaving responsibly, but I’d feel even better to see his ‘bear number’, and would be absolutely thrilled if he’d put some probabilities behind those bull & bear cases.

    (One reason to see the bear number is to see how much higher it is than $150 🙂 )

    January 8, 2020

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