Apple's upcoming third-quarter report is expected to take center stage in a busy earnings week. While concerns about the tough smartphone market may dampen optimism, Wedbush analyst Daniel Ives recommends investors to look beyond these challenges and have faith in Apple's stock for potential growth.

Apple (ticker: APPL) is currently grappling with a slowdown in smartphone sales, along with the rest of the industry.

According to consensus forecasts, Apple is projected to generate $40.23 billion in revenue from iPhone sales during the June quarter, a decline from the $51.33 billion recorded in the previous quarter. However, Ives believes that these predictions may be overly pessimistic.

"We believe Apple should at least meet June quarter iPhone revenue expectations, with potential upside when the company reports this Thursday after the bell," wrote Ives.

Ives suggests that the potential upside surprise could come from gaining market share in China while maintaining stability in the U.S. and Europe. However, he also cautions that Apple's outlook for the current quarter may be conservative.

"We would expect relatively cautious September guidance as this is all leading up to the much-anticipated anniversary iPhone 15 launch scheduled for mid-September," warned Ives.

Nevertheless, Ives recommends supporting Apple's stock, which reached a market value of $3 trillion, based on the anticipated acceleration in services revenue by 2024. He predicts that with the addition of 100 million iPhone users over the past 18 months, along with price increases and increased activity on the App Store, the services business will experience double-digit growth in the upcoming quarters.

"We believe Apple's Services business holds a valuation of $1.3 trillion to $1.4 trillion and remains an underappreciated asset by the Street. Many skeptics still fail to embrace the new valuation paradigm set in motion by Apple," explained Ives.

Ives maintains a Buy rating and a target price of $220 for Apple stock. As of now, shares are trading relatively flat at $195.76 in premarket trading, having seen a 51% increase this year thus far.

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