1 Stat That Makes Apple Hard to Ignore Right Now
Key Points
Apple has a much higher profit margin in its services segment than in its products segment.
Although services account for only 28% of revenue, they're 42% of gross profit.
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Apple (NASDAQ: AAPL) is best known for its highly successful products, including the iPhone, MacBook, and AirPods. Products also make up the bulk of its sales. Most recently, products accounted for about 72% of the $109.4 billion it made in fiscal 2026's third quarter.
However, in terms of what makes Apple stock an attractive investment, the services segment is arguably the more important story.
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Services include the App Store, iCloud, Apple Music, Apple TV, and more. This segment generated $30.7 billion in sales in Q3, or about 28% of total sales that quarter.
Although Apple doesn't make as much from services, the margins are much better -- 75.6% gross margin compared to 40.1% for its products segment. To put it another way, Apple keeps about 76 cents in gross profit from every service dollar, but only about 40 cents from every product dollar. This makes sense since services primarily rely on software and digital infrastructure, whereas products require manufacturing, transportation, and storage of hardware. The result is that services accounted for about 42% of Apple's gross profit for the quarter.
Services also benefit from the success of Apple's products. They're built into Apple devices, and active devices hit all-time highs across every major product category and geographic segment in Q3.
It's not all good news. While services revenue increased 12% year over year in Q3, it declined sequentially, down from $31 billion in Q2. That's a small decrease, but it's worth monitoring how this segment does on Apple's next earnings report, which will be released on Nov. 2.
Apple probably won't perform like a growth stock going forward. It has a market cap of $4.9 trillion, so growth is harder to come by. It also trades at 35 times forward earnings as of Oct. 9, so some growth is already priced in. Still, its high-margin services business, combined with its wildly popular products, has it well positioned as a steady compounder. That makes the stock worthy of added consideration.
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Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.
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