Earlier this year, Wedbush analyst Daniel Ives suggested that Apple (NASDAQ:AAPL) could reach a market cap of $2 trillion by the end of 2021, thanks in large part to a "valuation rerating" that has been occurring as investors are finally appreciating the full potential of Apple's booming services business. Well, the Mac maker's market cap hit that historical milestone last week, well ahead of Ives' predicted timeline.

With that achievement in the rearview mirror, can Apple stock continue its rally to $600?

Tim Apple tries to get people to do an iPhone business

Image source: Apple.

The iPhone 12 will be a "once in a decade" upgrade opportunity

Ives recently reiterated an outperform rating on Apple and assigned a 12-month price target of $515. Under the most bullish scenario, the analyst believes that Apple stock could reach $600, which would translate into a market cap of nearly $2.6 trillion based on the current number of shares outstanding.

"With the elusive $2 trillion mark hit this week by Apple, we still believe the stock has a lot of gasoline left in the tank with an iPhone 12 'supercycle' on the near term horizon," Ives wrote in a research note to investors. Despite ongoing challenges that the COVID-19 pandemic is creating, the analyst believes that Apple is facing a "once in a decade" opportunity with this product cycle because an estimated 350 million iPhone owners are in the upgrade window. That's a meaningful chunk of the total iPhone installed base of around 950 million.

The Cupertino tech giant's business in China has been stabilizing in recent quarters, and Ives believes that Apple will see "considerable strength" from the Middle Kingdom. Approximately 20% of iPhone upgrades are expected to come from China, the largest smartphone market in the world, over the next year.

Apple's services business is currently worth an incredible $700 billion to $750 billion, in the analyst's view. That would be about a third of the company's total market cap, despite the fact that the services segment represents just 19% of total trailing-12-month (TTM) revenue. However, services account for nearly a third of gross profit due to the high-margin nature of that business.

Ives expects Apple's services revenue to grow to around $60 billion next year, compared to the current TTM revenue base of about $51.7 billion. The wearables business, which management frustratingly says is now the size of a Fortune 140 company (about $22.5 billion in revenue), also continues to impress. The analyst is modeling for AirPods unit volumes to grow from 65 million in 2019 to 90 million in 2020.

Ives concludes that investors and analysts are very likely underestimating how much pent-up demand will be unleashed by the iPhone 12, which is expected to get a design overhaul and add support for next-generation 5G cellular technology.