Investors should buy Apple shares because the iPhone 8 and its services business may drive the company's value above $1 trillion next year, according to RBC Capital, which reiterated its outperform rating on the smartphone maker.
"We believe AAPL's current stock price creates an attractive entry point for investors to benefit from its ability to return to revenue and EPS growth in FY17," analyst Amit Daryanani wrote in a note to clients Monday entitled "The path to a trillion dollars – yes, we can."
"AAPL has potential to achieve a $1.0 trillion dollar market cap and even surpass that over the next 12–18 months," he added.
Daryanani raised his official price target for Apple to $168 from $157, representing 10 percent upside from Friday's close. Apple has a market value of $798 billion, according to FactSet, so his target does not get the shares to the $1 trillion mark.
However, the analyst shared the financial inputs of his trillion-dollar market value scenario for Apple:
"(1) higher revenue growth through FY18/19 (mid- to high-single-digit) driven by ASP [average selling price] tailwind (blended ASP ~ $800) and unit growth; (2) gross margins expanding by 20–30bps (services contribution offset by iphone BOM); (3) operating margins expanding by ~100bps via. SG&A controls; and (4) sustained buyback-driven tailwinds enabling low-teens EPS growth; and (5) repatriation tailwind (not baked into our scenario but could add upside to EPS)."
Daryanani cited the upcoming "premium-priced" iPhone 8 and "high teens" annual growth from Apple's services business as key drivers for the tech giant's future financial results.
"In aggregate, we see a scenario where in FY19 AAPL sustains $12+ EPS and, assuming the valuation frameworks remains stable/improves, it should get AAPL stock toward $192–195/sh, which would equate to market cap > $1.0 trillion," he wrote.
Apple is one the best-performing stocks in the market this year. Its shares are up 32 percent year-to-date compared with the S&P 500's 6 percent return in the same time period.
Currently only one out of 38 analysts, Drexel Hamilton's Brian White, has a price target for Apple that values the company at over $1 trillion, according to FactSet.
— CNBC's Michael Bloom contributed to this story.