Software services are the linchpin of Apple's long-term growth, analyst says 

  • IPhone sales are expected to be strong next year, but its software services that will guarantee continued growth for Apple, Dan Ives of GBH Insights told CNBC on Thursday.
  • It's a "monetization story" from here on out for Apple, Ives said, so long as the company executes.

IPhone sales are expected to be strong next year, but its software services that will guarantee continued growth for Apple, Dan Ives of GBH Insights told CNBC on Thursday.

"Really the linchpin, it's the software services piece. Because that's the key to the monetization of the install base," Ives said on "Power Lunch."

GBH raised its price target on Apple from $215 to $245 in a note Thursday, and maintained its rating of "highly attractive." Apple shares were up modesty Thursday afternoon at around $215. The upgrade comes less than one month after the tech giant became the first publicly traded U.S. company to reach a $1 trillion market capitalization.

The firm boosted its Apple target for a number of reasons, not least of which is the impending iPhone upgrade cycle. Ives said Wall Street's projections that the company will ship about 220 million units within the next 12 months may prove conservative, because many users will have the opportunity to upgrade, and may be enticed by Apple's upcoming products. GBH estimates Apple will capture a majority of the 350 million iPhones that enter the "'window of opportunity' for upgrade' within the next 12 to 18 months.

But really it's services revenue that will be at the forefront for Apple in the coming years, Ives, who is head of technology research and chief strategy officer at GBH, wrote in the note.

"The 'high octane fuel' from the services business which is on a trajectory to be a $50 billion annual revenue stream by 2020 speaks to the stepped-up monetization of Apple's unparalleled installed base that is front and center for Cupertino (and its investors) over the coming years," Ives wrote, referring to the company's headquarters in California.

Apple's extensive, loyal fan base is willing to pay a high price for hardware, which Ives said means Apple has the pricing power over its services, too.

"It's very similar to being a Prime member for Amazon. Once you are in, you're in," Ives said. Rising average selling price "along with the monetization on the services side, that's really the one-two punch here that I think the bulls are starting to look forward to over the next year."

It's a "monetization story" from here on out for Apple, Ives said, so long as the company executes.

"No different from what [CEO Satya] Nadella's done with Microsoft, expectations were high for cloud, they needed to execute. That's what's really key now on the services side for Apple over the next 12 to 18 months," he said.