Apple (AAPL 0.53%) has a long history of dominating the tech industry. The company isn't always the first to a market, but has a proven talent at taking existing technology and using its custom design language to skyrocket the product into mainstream use. Smartphones, tablets, smartwatches, and even Bluetooth headphones saw rapid spikes in widespread adoption once Apple launched their own versions. As a result, the company holds leading market shares in each of these product categories.
The tech giant's success over the years has seen its stock soar 900% over the last decade. For some companies, that kind of growth could suggest its shares don't have much to offer new investors. However, tech is an ever-expanding industry that grants innovative companies consistent gains over the long term. As one of the biggest names in the market, Apple shares are an attractive investment for patient buyers.
So here's why it's not too late to buy Apple stock.
A tech market sell-off
All eyes were on tech in the first half of this year, with Wall Street rallying over the potential of burgeoning markets like artificial intelligence (AI) and virtual/augmented reality (VR/AR). However, excitement seems to have hit a peak, leading to a slight sell-off in the tech market that saw the Nasdaq-100 Technology Sector tumble 6% since the start of August.
Apple shares have dipped 9% in the same period, with many of its peers experiencing similar declines. Investors are increasingly wary of how macroeconomic headwinds could affect the market over the next year.
Apple was left mostly unscathed amid last year's economic downturn. However, 2023 has seen it report three consecutive quarters of revenue declines after significant reductions in consumer spending. In the third quarter of 2023, Apple's revenue fell 1% year over year as net sales decreased in three of its four product segments.
One of the few silver linings of the sell-off is that Apple's price-to-earnings ratio (P/E) of 29 is at one of its lowest points in the last three months. P/E is a helpful metric in determining a stock's value, with a P/E of 20 or below usually considered a bargain. While Apple's is above this figure, its P/E is lower than those of competitors like Microsoft, Amazon, or Meta. As a result, Apple could be one of the best-valued stocks in big tech.
Economic challenges won't last forever, making Apple an attractive long-term investment that could pay off significantly in a market recovery.
Apple's services business is booming
Apple's products segment may be under strain, but its services business has proved far less vulnerable to macro factors. The company's services segment includes income from its App Store and subscription-based platforms like Apple TV+, Music, and iCloud. The digital business has continued delivering stellar growth over the last year, earning the second-largest portion of revenue and often outpacing the iPhone -- the company's highest-earning segment.
In fiscal 2022, services revenue grew 14% year over, double that of the iPhone's growth. Then, in Apple's most recent quarter (Q3 2023), services net sales rose 8%, while the tech giant's smartphone segment declined 2%. Services could be on track to eventually surpass the iPhone, which is a promising trajectory for the company.
In addition to being less vulnerable to economic challenges, services offer attractive profit margins. The segment regularly hits profit margins of 70%, while products are around 35%.
Apple has aggressively expanded its subscription services, launching Apple TV+, Arcade, News+, and Fitness+ in 2019. Meanwhile, the company has recently moved into fintech, teaming up with Goldman Sachs to offer consumers a credit card, savings account, and a buy now pay later program.
Services are a lucrative area for Apple, allowing it to lean less on product sales when faced with short-term headwinds. The company's success and expansion in the digital market only strengthen the argument for its stock, with its diversification likely to offer consistent gains over the long term.
