The iPhone maker is home to a lucrative services business that’s worth investing in.
apple (AAPL 0.02%) Investors have been on a roller coaster ride in recent years, with the iPhone maker’s stock plummeting 27% in 2022 due to the economic downturn. The company’s stock price rebounded 48% the following year. However, the company’s stock has fallen 1% since the beginning of the year due to repeated business hits and declining revenue throughout 2023.
Wall Street is growing wary of Apple’s iPhone-reliant business as macroeconomic headwinds catch up with Apple and lead to a decline in product sales. But recent quarterly results and a move to prioritize more digital business suggest the company is moving in a better direction.
Apple’s digital services division has consistently surpassed the iPhone and is on track to become its most profitable division. Meanwhile, a gradual expansion into artificial intelligence (AI) could allow the company to benefit for years from the tailwinds of a $200 billion (and growing) industry. As a result, now may be the best time to invest in Apple, as it is at the beginning of a major shift in its business model.
Here are three reasons why you should buy Apple stock like there’s no tomorrow.
1. Highly profitable service business
Apple’s Services segment includes revenue from subscription-based platforms such as the App Store, Apple TV+, Music, and Fitness+. The bulk of the company’s services launched in 2019, and the division quickly became the most profitable part of Apple’s business.
The service’s gross margin regularly exceeds 70% and reached 75% in the second quarter of 2024 (an improvement of about 4% year over year). For reference, the product’s profit margin hovers around 36%.
What’s more, its service consistently outperforms that of other Apple divisions. In the second quarter of 2024, digital business revenue increased 14% year over year, while iPhone sales decreased 10% and iPad revenue decreased 17%.
Services have diversified and strengthened Apple’s business, reducing its dependence on product sales even in adverse market conditions. This sector is rapidly expanding and represents a promising shift in Apple’s priorities from physical products to more profitable digital products.
2. Brand power and financial power to make a leap forward with AI
Despite recent challenges, Apple remains a consumer technology giant. Thanks to nearly unparalleled brand loyalty, the company dominates multiple product markets, with top market share in smartphones, tablets, smartwatches and headphones. Although sales decreased from last year, the company is moving to strengthen its product business that utilizes AI.
Apple has been gradually adding AI-enabled features to its product lineup since the beginning of 2023, but now it appears to be accelerating the pace. On May 7, the company hosted a “Let Loose” event to show off the latest iPad Pro, the first device powered by Apple’s new M4 chip.
The chip is Apple’s most powerful chip to date and significantly expands the company’s AI capabilities. The announcement appears to be a preview of what Apple will announce at its Worldwide Developer Conference in June, and experts believe the company will unveil a variety of new AI-powered tools.
Additionally, Bloomberg reported last month that Apple plans to overhaul its Mac line of computers to focus on AI, powering its AI software in data centers with chips of its own design.
Apple’s dominance in consumer technology could give it a favorable role in the AI space. While companies prefer microsoft and Amazon focuses primarily on the commercial aspects of AI, while Apple focuses on the consumer. The proliferation of its products could give Apple a significant growth driver in general AI adoption, reversing its recent product slump and boosting its revenue for years to come.
3. Record $110 billion share buyback plan
On May 2, Apple announced its largest stock buyback in history, revealing plans to buy back $110 billion worth of stock. The move sent Apple shares soaring 8% in post-market trading and gave investors some confidence in the company’s future.
Stock buybacks often occur because management believes the company’s stock is undervalued. As a result, a large share buyback could signal that management believes in the direction Apple is going, making the company’s stock an attractive option.
Apple has faced a number of challenges over the last year, but I wouldn’t bet on its long-term future. The company’s stock trades at 29 times expected earnings, compared to Microsoft’s 35 times and Amazon’s 40 times. It may not be a bargain, but the numbers suggest Apple could become one of the most valuable stocks in the AI space. Along with its lucrative services business, Apple is worth buying like there’s no tomorrow.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Dani Cook has no position in any stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, and Microsoft. The Motley Fool recommends the following options: His January 2026 $395 long call on Microsoft and his January 2026 $405 short call on Microsoft. The Motley Fool has a disclosure policy.
