Apple: The Importance of Services in its Financial Strategy for 2026

Key Points

• The new iPhones and wearables from Apple update their product line, but the higher-margin services business is doing the real heavy lifting.
• Services now account for nearly a third of the tech giant's revenue, with significantly higher margins than hardware.
• The premium valuation of stocks means that the investment case depends more on the compound growth of services than on any individual product cycle.

Apple has unveiled this week its new product line, including the iPhone 17 family, a new ultra-thin iPhone Air, and updates to its wearables. These launches are crucial to maintaining consumer interest during the holiday season. However, looking ahead to fiscal year 2026, the true growth engine for the company and its shares is the services business.

Apple's services segment, which includes the App Store, subscriptions, payments, advertising, iCloud, and more, is growing faster than hardware and offers significantly higher margins. This sector represents an increasingly larger portion of Apple's profits, which could sustain earnings growth and support the premium valuation of the stock in the long term.

Recent results highlight Apple's crown jewel

In the third fiscal quarter ( ending on June 28 ), Apple reported revenues of $94.0 billion, a 10% year-over-year increase, and earnings per share of $1.57, a 12% increase. Management highlighted a record in total revenues for the quarter ending in June, as well as a historic high in service revenues.

The services segment generated $27.42 billion, an increase of approximately 13% year-over-year, representing about 29% of total sales for the period. More importantly for investors, Apple's services have a structurally higher profitability, with a gross margin of around 76% in the quarter, compared to 35% for products.

In the long term, services have clearly become a more important part of the business. For the nine months ended June 28, 2025, services accounted for approximately a quarter of Apple's total revenue, a significant increase from fiscal year 2019, when the segment represented less than 18% of sales.

New products are useful, but services are key

The new products introduced this week are important for keeping Apple’s ecosystem fresh and potentially increasing average selling prices. However, the story of fiscal year 2026 is likely to be written in services. The recurring and subscription-based nature of this segment, combined with Apple’s record installed base, creates a lasting platform for growth.

With services already accounting for nearly a third of revenue and the majority of gross profits, increases in this sector can offset variability in hardware cycles and support the continued expansion of profits.

This is especially relevant given the current price-to-earnings multiple of Apple shares, which stands at 30. Investors are paying for a steady growth of high-margin earnings, driven more by services than by any individual feature of the iPhone.

Comparison with the Web3 ecosystem

In contrast to Apple’s centralized model, the Web3 ecosystem offers decentralized services with unique features:

While Apple dominates in user experience and integrated ecosystem, Web3 platforms offer greater transparency and user participation in governance and economic benefits.

Apple's Potential in Web3

Although Apple has not announced official plans in Web3, its robust service infrastructure and massive user base could position it for an eventual entry into this space. Possible areas of exploration include:

• Integration of crypto wallets in Apple Pay
• NFT Marketplace on App Store
• Decentralized digital identity services

Apple's adoption of blockchain technologies could revolutionize its service model, potentially increasing user retention and creating new revenue streams.

In conclusion, while Apple's new products maintain their appeal in the market, the sustained growth of its services segment will be crucial for its financial performance in the coming years. The potential adoption of Web3 technologies could open new avenues for growth, although for now, the company's focus remains on optimizing its current services model.