People view their cellphones outside the Apple store at the Grand Central Terminal in New York.

Apple's video streaming offering will be a multibillion-dollar business for the smartphone maker, according to Morgan Stanley.

The firm reiterated its overweight rating for Apple shares, saying investors are underestimating the strength of its services business.

"We believe that Apple Video will become a reality sooner than investors think ... Optionality around Apple Video helps emphasize the increasing contribution to growth from Services," analyst Katy Huberty said in a note to clients Wednesday entitled "The Emerging Power of Apple Services, Part 3: Video a New Growth Driver in 2019."

"While not a first mover, Apple's attractive and sticky customer set combined with low friction sign-up and payment system could drive users to its video platform, even with a less complete content portfolio vs. Netflix."

Huberty raised her price target to $245 from $232 for Apple shares, representing 7 percent upside from Tuesday's closing price.

She predicts Apple's stand-alone video offering can generate sales of $4.4 billion in six years from an estimated $500 million in 2019.

"Apple has the world's most valuable technology platform with 1.3Bn active devices, and is well positioned to capture more of its users' time in areas such as video, augmented reality, health, autos and home," she said. Faster growth from services, margin expansion and the benefits of tax reform and returning cash to the U.S. from abroad "are catalysts that can help sustainably re-rate shares."

Apple shares are up 35 percent this year through Tuesday versus the S&P 500's 8.3 percent gain.

Last month Apple became the first publicly traded U.S. company to reach $1 trillion in market value.