There's no question that Apple (AAPL -2.05%) is a great company. Warren Buffett certainly agrees: Nearly half of Berkshire Hathaway's stock portfolio is tied up in shares of the company. The iPhone remains a dominant force in the smartphone market, and there's no sign that Apple's most important product is going to be disrupted in the near future.

Sky-high profits and one big problem

Apple's report for the fiscal second quarter, which ended April 1, highlighted the company's industry-leading profitability. On $94.8 billion of revenue, Apple produced operating income of $28.4 billion. That's an operating margin of 30%. Apple is also a cash machine. Free cash flow totaled $55.9 billion in the first six months of the fiscal year.

But growth is becoming a problem. In recent years, the company has greatly expanded its services segment, adding new products like Apple TV+ to extract more ongoing revenue from its enormous install base. The effort has certainly paid off: Services revenue reached $20.9 billion in the second quarter alone, making it the second-largest segment behind the iPhone.

The company is facing two headwinds to growth. The first is its enormous size. The iPhone business is already so big, and the company already has such a high market share, that long-term gains are likely to be sluggish at best. Apple did manage to increase iPhone revenue slightly in the second quarter, but it's down in the first six months of the fiscal year.

The second headwind is the economy. Sales of Macs plunged in the second quarter as the PC market convulsed, sales of iPads were down significantly, and even sales of wearables and other products slipped. Services revenue edged up 5%, but it wasn't enough to offset declines elsewhere. Total revenue dropped 2.5% year over year.

Profits were also down. Operating income dipped 5.5% as the company had increased operating expenses despite the revenue decline. An enormous share-buyback program reduced the share count enough to keep per-share earnings flat compared to the prior-year period.

One potential source of future growth is a new blockbuster product that rivals the iPhone in scale. Apple is reportedly working on a number of things, including a virtual/augmented reality headset and some sort of self-driving electric car project. While the headset could add meaningful incremental revenue, the car project seems like a long shot.

A pricey valuation

Analysts expect Apple to produce earnings of $5.95 per share in fiscal 2023. That puts the forward price-to-earnings (P/E) ratio at about 29.

Excluding the early pandemic period, the P/E ratio is higher than at any time since about 2009. Investors considering paying such a lofty price for Apple stock need to ask themselves whether the company's growth prospects are meaningfully better today than they were a decade ago.

For me, the answer looks like no. Milking the iPhone will continue to produce enormous profits, but I think the chances that the company will cook up something new that ignites an iPhone-scale growth surge are slim. And at some point, just like PCs were disrupted by smartphones, the iPhone will be disrupted. If Apple is not the one doing the disrupting, that will spell trouble.

Right now, the S&P 500 trades at a P/E of about 24. Does it make sense for Apple to be significantly more expensive than the broader market? I'm not so sure.