It's no secret that Warren Buffett's biggest holding through Berkshire Hathaway is Apple (AAPL 1.22%). The tech giant's stock now represents 36.3% of the value in the conglomerate's equity portfolio. And while he was not the investment manager responsible for making Berkshire's initial foray into Apple, it certainly meets many of his well-known criteria for companies worthy of investment, such as a focus on quality and strong brand loyalty. 

The iPhone company has used these to attract millions of consumers into its walled garden of products, becoming the world's most valuable company in the process, with a market cap today of about $2.01 trillion. That said, Apple shares are down 27% year over year after a sell-off largely brought on by economic headwinds.

In my view, though, that stock dip has only made this Buffett holding more attractive and worth buying in 2023. Here's why. 

Apple and the power of brand loyalty 

Buffett has said his interest in Apple was sparked in 2016 when, after a friend had lost his iPhone in a taxi, they described the experience by saying, "I felt like I lost a piece of my soul." Buffett realized then that Apple was creating not just technology, but products that had become indispensable to many people -- and that would likely continue to be for the foreseeable future. 

Apple's focus on quality, user-friendly operating systems, and connectivity between its devices has created brand loyalty that encourages consumers to repeatedly return to its products. In fact, in September 2022, Counterpoint Research revealed that iPhones officially overtook Alphabet's Android in the U.S. market, accounting for more than half of smartphones in use in the country.

Counterpoint's research director noted that "operating systems are like religions." Once consumers grow accustomed to one, they are unlikely ever to change. This makes Apple's lead in smartphone market share promising for its future. An initial purchase brings consumers into contact with an array of products and services, and the further enmeshed people become in its ecosystem, the more opportunities it has to sell to them. 

In addition, brand loyalty can give a company pricing power. According to Self Financial, from 2007 to 2021, iPhone prices rose globally by 81%. And in individual markets, iPhone prices increased by 26% more than local inflation rates. However, annual iPhone revenue still rose from $1.8 billion in 2008 to $191.9 billion in 2021.

Apple is cashing in on subscriptions 

In recent years, the company has worked tirelessly on growing its services business with platforms such as Apple TV+, iCloud, Music, Fitness+, News+, and Arcade. Services give Apple another opportunity to bring consumers further into its ecosystem -- and to profit from monthly subscriptions. 

Recent iPhone production issues in China have led investors to bid down Apple shares by 12% in the last month -- understandable, as the smartphones provided 52% of the company's revenue in its fiscal 2022. However, its services are an excellent way to reliably diversify earnings. 

In 2022, revenue from Apple's services segment rose 14% year over year to $78.1 billion, double the 7% growth rate for iPhone revenues. The subscription-based business accounted for the second-largest portion of the year's revenue -- 20%.

In addition to impressive growth, Apple's motivation for growing the segment is its attractive profit margins. In 2022, services hit a 71.7% profit margin, while for products, the profit margin was 36.3%. While Apple accrues operating expenses for every device it sells, services are optimal as the company can pay once to create a piece of content and sell it millions of times over to consumers. Profit margins only improve when more consumers pay monthly subscription fees to retain access to that content.

As a result, digital industries such as streaming will continue to see tremendous growth in the coming years. According to Grand View Research, the streaming market will grow at a compound annual rate of 21.3% until 2030, and thanks to Apple TV+, the tech company will likely profit significantly from that growth.

Like most tech stocks, Apple had a challenging 2022. However, it continues to show why it is Berkshire Hathaway's biggest holding and Buffett's favorite stock. After a 27% dip in stock price over the last year, Apple is a must-buy in 2023.