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Apple’s growing service business could make stock less of a bumpy ride, analyst says

Apple App Store
Scott Mlyn | CNBC

Investors should buy Apple on the potential in the tech company's expanding services business, said an RBC analyst, who kept the shares at outperform and raised his price target.

The growing services business, which Apple intends to double in four years, could reduce the laser focus of investors on the phone replacement cycle each year, wrote Amit Daryanani in a note on Tuesday.

"It's the ecosystem, not just hardware," he wrote.

Daryanani estimates that the largest components of Apple's services business are currently:

  1. The App store (3.9 percent of total revenue)
  2. iTunes/Apple Music (2.5 percent)
  3. AppleCare (1.9 percent)
  4. Licensing and other services like iCloud (2.7 percent)

Shares of Apple were up 20 percent year to date as of Tuesday's close after first-quarter earnings reflected higher-than-expected iPhone sales. The stock's movement still largely depends on iPhone sales.

Warren Buffett's Berkshire Hathaway, which tends to favor businesses with steady revenue streams, more than doubled its stake in the company in January.

Apple shares year-to-date performance