Apple (AAPL 0.62%) ranks high among the most popular companies in the world. Its flagship product, the iPhone, is one of the most successful tech-based devices of all time.
That popularity has helped make Apple stock successful and in demand for more than a decade now. But is the stock still a buy? There are undoubtedly opinions on both sides.
Let's look at both sides of the argument and see if we can determine whether the bull case or the bear case wins the day on Apple stock.
Bull case: Innovation spanning decades
The decades of proven innovation are at the core of my bull case for Apple. The company has developed multiple iconic products that have generated billions of dollars in sales, and that ability is attractive to investors. The ability to keep coming up with something new that consumers want suggests that Apple can keep the revenue train rolling even when sales of its current lineup start to lose steam (something that is not yet the case with its current lineup).
Annual revenue has gone from $156 billion a decade ago to $365 billion in the latest fiscal year. That growth boosted annual operating income from $55 billion to $109 billion over the same timeframe. The various iterations of the iPhone have fueled much of that surge and show no significant signs of slowing down.
In Apple's most recent quarter, sales of the iPhone (now in its 13th iteration) increased from $47.9 billion in the prior year's quarter to $50.6 billion. The most recent update included the latest 5G technology, spurring higher-than-average upgrades from older models.
Moreover, the popularity of the iPhone has allowed Apple to build a robust services business that complements the pioneering smartphone. The company boasts a whopping 825 million service subscribers, an increase of 165 million from last year. Its lineup includes Apple Music, Apple TV+, iCloud, Apple Fitness, and more. Note the gross margin on its services segment is 72.6%, while that of its products is 36.4%.
Those 825 million subscribers are not only providing high-margin revenue to Apple, but are also prime candidates to buy its latest products. Once customers enter the Apple ecosystem and customize their products and services to their liking, they'll likely stick around long term.
Bear case: Heavy dependence on iPhone
The bear case concedes that Apple is a tremendously successful innovator with decades of proof. However, the case against investing in Apple centers around its iPhone dependence. While Apple has done an excellent job creating sought-after consumer electronics like the iPod, iPad, AirPods, Apple Watch, etc., it's still largely dependent on the iPhone.
In its most recent quarter, the iPhone comprised 52% of the company's overall sales. That's not even including all the attachments that go along with it. The risk is that if Apple doesn't continue its iPhone success, revenue growth could stall or even reverse. Similarly, if another business creates a more attractive consumer electronic that unseats the iPhone, it could be disastrous for Apple.
There are hints of wearable glasses that could be capable of everything a smartphone can do and more. Virtual-reality headsets are gaining in popularity alongside the metaverse. Innovation is unpredictable. For Apple to rely so heavily on one product for 52% of its sales adds a layer of risk to the business.
The bulls win out
Overall, the bull case carries more weight. Admittedly, there's a risk in Apple's dependence on the iPhone. That being said, with its decades-long history of creating multiple innovative products, Apple stands a reasonable chance of pivoting to the next popular thing when it comes to light.
