Apple's market cap could rise to $3 trillion if it switches its business model, Morgan Stanley says

Published Thu, Jul 21 202211:52 AM EDTUpdated Thu, Jul 21 202212:41 PM EDT

Beaten-up technology giant Apple could hit a $3 trillion market capitalization once again if it continues its shift toward a subscription model, Morgan Stanley says. The iPhone maker last accomplished this feat in January, becoming the first U.S. company to briefly hit that level before diving more than 16% from its highs as markets hit sell-off mode. According to analyst Erik Woodring, moving toward a subscription model will offer Apple "more stable and predictable, long-term cash flows," which could bump the technology giant's equity value to $200 per share, or a $3 trillion market cap. That estimate is based on the bank's "lifetime value DCF" approach. "From units x price to installed base monetization, the Apple model is already evolving toward a more recurring business," Woodring said in a note to clients. "The Apple business model is shifting from one that maximizes hardware shipment growth to one that maximizes installed base monetization, underscored by increased services and installed base disclosures, and a move away from reporting units and ASPs." Shares of Apple have suffered this year, plunging 13% as investors rotate out of growth stocks in a rising rate environment. Woodring is assuming coverage of the stock from Katy Huberty, according to the note. He is keeping the overweight rating on the stock and has a $180 price target, which represents a potential 17.6% rally from Wednesday's close price of $153.04 a share. If Apple hits $200 a share, that would imply a near 31% upside. According to Morgan Stanley, Apple is already 80% on its way toward accomplishing this subscription-based model, having achieved four of the main characteristics that make this a successful business. Those attributes include high retention rates and pricing power. "When combined with Apple's expanded use of re-occurring payment methods, including services subscriptions, hardware installment/financing plans, and bundled packages, we believe these efforts allow for a better understanding of customer behaviors, more robust monetization targeting, and ultimately, more stable and predictable cash flows," Woodring said. Apple's market cap was at $2.51 trillion in midday trading on Thursday. — CNBC's Michael Bloom contributed reporting

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