Apple's Services Business Was a Major Catalyst Last Year, and 2026 Will Likely Be Even Better

Services is no longer just a supporting character inside Apple (NASDAQ: AAPL). It has become a substantial portion of revenue and represents an even bigger share of profits -- and it's helping the company turn its massive device footprint into repeatable, higher-margin revenue. This, in turn, improves Apple's earnings potential and helps the tech company be less dependent on iPhone, which accounts for more than 50% of revenue.

Here's a closer look at Apple's strong momentum in services and how the important segment's momentum could accelerate in 2026.

Image source: Apple.

Apple's services business is getting bigger

In Apple's fiscal fourth quarter of 2025 (ended Sept. 27), services revenue rose to $28.8 billion -- up 15% year over year and putting the segment's revenue at an all-time record quarterly record. The increase, Apple said in its fiscal fourth-quarter earnings call, was driven primarily by higher sales from advertising, the App Store, and cloud services. Zooming out to the entire fiscal year, the company reported services revenue of $109.2 billion, up 14% from fiscal 2024.

Including sales from the App Store, iCloud, Apple Music, Apple TV, Apple Pay, AppleCare, and advertising, the segment ultimately represents how Apple earns money after a device is already in a customer's hands, making it a valuable business segment for Apple. In addition, the segment boasts a higher profit margin than Apple's hardware sales. In fiscal Q4, for instance, Apple's services gross margin was 75.3% -- compared to 36.2% for products. This recurring nature of the segment's revenue, combined with its outsize profitability, is why the services business is so important to the company and shareholders.

Services should shine in 2026

Notably, Apple management has strong expectations for the segment in fiscal 2026, too. Looking ahead to its first quarter of fiscal 2026, Apple chief financial officer Kevan Parekh said in the company's fiscal first-quarter earnings call, "We expect services revenue to grow at a year-over-year rate similar to what we reported in the fiscal year 2025." And given Apple's reputation for being conservative when it comes to guidance, I think this means that Apple could see an acceleration in its services revenue growth in fiscal 2026.

Apple also put more context around the services story in an update on the business segment this week. The release highlights what Apple calls a record-breaking 2025 for services, with a few numbers that help explain why the business keeps compounding.

For example, Apple said the App Store averaged over 850 million weekly users globally in 2025. Additionally, Apple Pay now boasts over 11,000 bank and network partners and is available in 89 markets. Apple reported that its streaming TV service, Apple TV, saw total viewing hours increase 36% year over year in December.

And there could be some upside surprises in the segment as the company continues to invest in its core services and as it ramps up Apple Intelligence (Apple's artificial intelligence). As Eddy Cue, Apple's senior vice president of services, put it: "As we look ahead, we'll continue to bring innovation and intelligent enhancements to Apple services..."

Of course, the stock already reflects plenty of confidence. Shares currently trade at about 35 times earnings -- a valuation multiple that prices in strong double-digit earnings growth for the foreseeable future.

Still, I'd argue that the services story is strong enough to make a good bull case for the stock -- even from this valuation. The fast-growing segment represents a lucrative way for Apple to expand its business without incurring too much risk, as it leverages a massive base of active devices and simply layers on services that customers use frequently and pay for repeatedly. Additionally, it's a model that has already proven to work. Apple, therefore, just needs to keep doubling down on what it's already doing.

Even more, I believe that fiscal 2026 will be the year when Apple Intelligence becomes more prominent in the Apple ecosystem, helping to accelerate the adoption of existing services and potentially creating entirely new ones.

Overall, Apple's services momentum will likely help the company deliver steady, strong growth for shareholders. But a premium valuation can also limit near-term upside if the segment doesn't live up to expectations. So, investors should watch the segment closely throughout the year to determine whether it can truly maintain its momentum or even accelerate.

Daniel Sparks and his clients have positions in Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.