The company announced earnings after the bell Tuesday, July 31. It blew the estimates out of the water, impressing Morgan Stanley analysts with the Services sector growth. Apple's services revenue grew 31% year over year, which beat expectations of 26%. The amount of subscribers to Apple's services revenue climbed over 300 million, a 60% increase year over year.
"We see more upside than downside risk to the upcoming iPhone product and a building Services narrative. Even if device revenue slows, Services and Wearables can pick up the slack," Morgan Stanley analysts wrote.
Action Alerts Plus analyst Zev Fima feels similarly to Morgan Stanley analysts. He argues against the Apple bears who focus on Apple's hardware. Fima said that, "In my mind, you always bought Apple products for the software, even before the services, you paid up for an Apple laptop because you wanted the Apple operating system. You never bought its products for the hardware. In my mind, it's not about hardware sales sustaining the services; it's about the services resulting in sustained hardware sales."
This is, according to Fima, due to the fact that other companies have had the same hardware, if not more advanced hardware, ahead of Apple. For example, Android had wireless charging and facial recognition on some of its phones before Apple.
"We like Apple's pipeline in wearables (e.g. AR glasses, aesthetic changes to Apple Watch, AirPods refresh, AirPower) and potential opportunities in Services (e.g. original video content). We think Apple's potential to grow subscription-based service offerings remains key," CFRA analyst Angelo Zino wrote.
Morgan Stanley has a price target of $232 for Apple. Analysts have the stock rated as attractive and overweight. CFRA has a price target of $220, which is up from its previous price target of $210.
On Wed., Aug. 1, Apple was up more than 5% to $200.26 a share.
Here's what else Jim Cramer's Action Alerts PLUS member club is saying about Apple after earnings.