Apple could get a big boost from its services business, according to Goldman Sachs. Analyst Michael Ng initiated coverage of the big tech stock with a buy rating and a $199 price target. The price target suggests the stock could rally 31.8% from where it closed on Friday. Ng said investors may be wrongly focused on slow product growth, which is masking what he sees as an opportunity for the company to grow its services business. He said improvements in the service business, paired with product innovation and growth in languages, should offset headwinds from reduced demand for phones, tablets and Macs. “The majority of gross profit growth over the next 5 years should be driven by Services, which should mark an inflection point in Services’ investment narrative and support AAPL’s premium diversification,” he said in a note to clients Sunday. “The resilience of Apple’s installed base and the resulting visibility of revenue growth from deploying more Services and Products is what underpins recurring revenue – or Apple-as-a-Service – opportunities.” Apple has unmatched brand power, according to Ng. Such brand loyalty can help companies grow their user base, which can ensure lower churn and repeat purchases when newer technology models come out. Ng points to Apple TV + and Apple Fitness as two examples of product and service launches. Continued penetration of the smartphone market in mature and newer markets will help expand that user base, Ng said. The growth of 5G and the used phone market will also increase Apple’s reach, he said. Ng said Apple’s trade-in program can also help make iPhones better. Ng said Apple’s valuation is more attractive than most historically and compared to its major peers in technology. The stock rose 1% in premarket Monday and has gained 16.2% this year after falling 26.8% in 2022. Apple’s services business should see a compound annual growth rate of 11% until at least the end of fiscal 2026, Ng said, generating $117. billion in revenue. compared to $78 billion in fiscal 2022. A key growth driver that should come from a 3% compound annual growth rate in the volume of iPhone users and a 7% compound annual growth rate in average revenue per user. This will contribute to a 10% compound annual growth rate in earnings per share expected between fiscal years 2022 and 2026, aided by earnings resilience and share buybacks. Of course, Ng said Apple’s performance could be affected by consumer demand, supply chain disruptions, increased competition and regulatory or capital allocation difficulties. While he said that product revenue faces headwinds in the near future, average revenue per user should return to historical levels as new products like headsets can help offset losses due to the fact that people are keeping their iPhones longer than before replacing them. – CNBC’s Michael Bloom contributed to this report.