Apple's New Products May Help the Stock, but Services Matter Most Heading Into Fiscal 2026
News Summary
This article highlights that while Apple's fall product event, introducing the iPhone 17 family, the ultra-thin iPhone Air, and updated wearables, captures immediate attention, the company's services business is the more critical driver for investors looking towards fiscal 2026. Services, encompassing the App Store, subscriptions, payments, advertising, and iCloud, are growing faster than hardware, carry significantly higher margins (around 76% for services vs. 35% for products), and are steadily increasing their share of Apple's overall profit. For the fiscal third quarter ended June 28, 2025, services revenue rose approximately 13% year-over-year to $27.42 billion, representing about 29% of total sales. Furthermore, Apple's investments in artificial intelligence (AI), such as Apple Intelligence and a more personalized Siri, are seen as potential catalysts for accelerated services growth. While new product launches are beneficial for short-term sales and potentially higher average selling prices, the recurring, high-margin nature of the services segment, combined with Apple's record installed base, is the fundamental engine supporting sustained earnings expansion and its premium stock valuation.
Background
Apple Inc. has historically been renowned for its innovative hardware products such as the iPhone, Mac, and Apple Watch. However, over the past several years, the company has actively been shifting its business model to emphasize services, aiming to reduce reliance on hardware sales cycles and leverage its vast global installed base of devices. The growth of its services segment has become an increasingly vital component of Apple's financial performance, contributing higher margins and a more stable revenue stream. The article underscores that as the current fiscal year 2025 concludes and the company looks towards fiscal 2026, the strategic importance of services will become even more pronounced, particularly amidst global economic uncertainties and potential tariff risks under the incumbent Trump administration's trade policies.
In-Depth AI Insights
How resilient is Apple's services growth trajectory against potential macroeconomic headwinds and increasing regulatory scrutiny? - Apple's services growth is underpinned by its vast global installed base, which provides a relatively stable user pool. However, its resilience could be tested by global economic slowdowns affecting consumer discretionary spending, particularly on subscription services. - Additionally, escalating antitrust scrutiny, especially concerning App Store commissions and payment systems, could force Apple to adjust its business model, potentially impacting service revenue growth rates and margins. - While AI investments promise new growth avenues, the commercialization path, user adoption, and effective integration of these new services with existing ones still present uncertainties. Beyond explicit AI investments, what subtle strategic shifts might Apple be undertaking to solidify its ecosystem and fend off increasing competition from other tech giants? - Apple may be deepening data integration and personalization across its services to create a stickier ecosystem, for instance, leveraging Apple Intelligence to more accurately anticipate user needs and deliver tailored content. - Covertly acquiring smaller AI and software companies to rapidly absorb innovative technologies and talent without public announcements of major strategic shifts. - Strengthening exclusive content and application partnerships with creators and developers to differentiate its service offerings, making them harder for competitors to replicate. Given its premium valuation, what specific, non-obvious risks related to its supply chain or geopolitical tensions could disproportionately impact Apple's services and hardware margins in the next fiscal year, beyond the general tariff uncertainty mentioned? - Localized shortages of critical chips or rare earth materials, particularly those concentrated in a few geopolitically sensitive regions (e.g., Taiwan or specific mining nations), could lead to production disruptions and cost escalations even if the broader supply chain appears stable. - Rising consumer nationalism or stricter local government regulations on data localization, privacy, and content censorship in key growth markets (e.g., India, Southeast Asia) could impede services growth or incur significant compliance costs. - International intellectual property (IP) disputes, especially patent battles related to AI technology or specific hardware components, could result in sales injunctions or substantial damages in certain global markets, impacting its broader expansion strategy.