Analysts at FBR Capital recently sparked a heated debate on Wall Street with its trillion valuation of Apple Inc. (NASDAQ: AAPL).

About a week after the initial report, FBR analysts issued a follow-up report detailing initiating coverage of Apple at Outperform and setting a $185 target price for its stock.

Crown Jewel

With many analysts and investors focusing primarily on Apple Watch, iPhone and iPad numbers, FBR credits Apple’s software as the “crown jewel” of its business and the major justification for the $1 trillion valuation.

Analysts point out that Apple’s services business segment operates on margins estimated above the 90-percent level after content costs are factored in.

“We estimate that in the high-growth scenario, services could contribute up to 32% of Apple’s total gross profit in FY17, up from our 12% forecast for FY15,” analysts explain in the latest report.

Related Link: Wall Street & Main Street Are Increasingly Bullish On Apple Ahead Of Earnings

Valuation

FBR’s $185 price target represents a multiple of 20X on Apple’s forecasted 2016 earnings per share of $9.46.

Over the next decade, FBR projects that Apple will see a 9 percent weighted-average cost of capital, a 7 percent terminal growth rate, compound annual revenue growth of 8 percent and a 30 percent estimated operating margin.

Path Forward

Analysts believe the first step in Apple’s path to $185 will be taken next week when the company reports Q1 earnings. Analysts see upside to Apple’s numbers, given strong iPhone 6 momentum.

Analysts believe that an increase in the role of the services segment, continuing penetration of the Chinese mobile market and upside from new device categories (such as wearables) will pave the way for Apple’s journey to $185.

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