It pays to listen to those who are experts in their fields. And when it comes to investing, there aren't many specialists who are more celebrated than widely successful investor Warren Buffett. The "Oracle of Omaha" has led Berkshire Hathaway for several decades, helping it crush the broader market since he took over. Among the many companies he and his team have invested in, Apple (AAPL -2.77%) features as one of their favorite picks. The tech giant is Berkshire Hathaway's largest holding, and with good reason.
Let's consider why Apple is such a great stock pick, even amid the economic troubles that may persist well into next year.
Old tricks are still working
One of the keys to Apple's success is its ability to deliver solid financial results in good times and bad. It continues to do just that. For example, the tech giant in its Q4 2022 earnings report, it reported $394.3 billion in revenue over the trailing-12-month (TTM) period, an increase of 8% year over year. Meanwhile, Apple's TTM net income of $99.8 billion marked a 5% increase year over year.
Although Apple's business has somewhat evolved in the past decade, it continues to generate the bulk of its sales from its hardware, especially the iPhone. But it isn't just Apple's famous smartphone that is doing well. In the fourth quarter of its fiscal 2022, which ended Sept. 24, Apple set all-time revenue records for its Mac devices.
It also set September quarter records for its iPhone and for its home, wearables, and accessories segment, which includes such devices as AirPods, HomePods, and the Apple Watch. Apple has developed a solid brand name, which allows it to retain the bulk of its customers -- many of whom switch to newer versions of its devices when they become available -- while also attracting new ones.
A survey conducted last year found that the iPhone had a loyalty rate of about 90%. In its September quarter, the tech giant set a new record for the number of upgraders and switchers for the iPhone. Apple will continue to generate solid sales from its iPhone, since mobile penetration is still relatively low in many parts of the world, especially in developing nations.
And, of course, future iterations of its prized device will continue to generate some enthusiasm among its existing users. In short, Apple's hardware business still hasn't peaked -- far from it.
Apple's push in payment services
As lucrative as Apple's devices are, the company's services segment is growing in importance. This unit is home to Apple TV+, iTunes, advertising products, iCloud, and more. Although these offerings are critical, the company's payment services are arguably the most promising. It includes Apple Pay, a mobile payment service; Apple Pay Later, a buy now, pay later (BNPL) offering; and Apple Card. It is no secret that the switch to digital forms of payment continues to gain traction.
That explains why more and more companies are dipping their toes into these waters. But Apple has an advantage over many of its competitors. The company already has a massive base of users to tap into. Apple's iPhone installed base exceeded 1 billion people last year. And as CEO Tim Cook recently said, "Our continued installed base growth across each geographic segment and each major product category represents a great foundation for future expansion of our ecosystem."
Apple's opportunities in the payment services industry are still in their (very) early innings. Last year, a survey found that only 6% of iPhone users who have activated Apple Pay use it for in-store transactions. But some 85% of retailers in the country accept this form of payment. Apple Pay's growing acceptance will help the company create a network effect as more merchants enrolled will attract more users and vice versa.
But as the data shows, there's still a massive gap to close between those who have activated Apple Pay and those who actually use it. Apple's relatively recent addition of its BNPL service may be intended to increase usage among iPhone holders. BNPL has gained traction lately, and analysts for Insider Intelligence project it to continue its upward path. This is one more reason investors should expect Apple Pay to rise in prominence in the coming years.
There is no ceiling for this stock
Some might point out that Apple is already worth over $2 trillion, making it the largest corporation (by market capitalization) in the technology industry and the entire world. But the company can still grow by leaps and bounds. Its sleek, expensive devices are still popular despite an economic slowdown, and the company's services segment, including its fintech efforts, boasts excellent long-term prospects. In other words, wouldn't rush to bet against Warren Buffett and his investment thesis for Apple.