Welcome back to another edition of Dueling Fools. This time, cloudy computing has given way to a shining star of innovation, as my friend Rick Munarriz (taking the bear posiition) and I debate the merits of Apple (NASDAQ:AAPL).

You won't often hear the Mac maker's executives gush over their products. Bragging? Yes, all the time. Gushing is different -- it's an expression of unbridled, game-changing enthusiasm. That's what investors heard from stand-in CEO Tim Cook during Apple's most recent earnings conference call.

Evolution of an ecosystem
Listen to how he talked about the iPhone and the iTunes App Store: "The breadth of Apps on the store [is] mind-boggling, from everything from fun things as games to very serious medical kind of applications. And so the power of the device and the ecosystem is enormous, and I think we are just scratching the surface now on its opportunity."

Admittedly, this could be nothing more than executive bluster. There's no hard and fast data that we can put into a discounted cash flow model and analyze.

Nevertheless, innovation matters for Apple investors. There's simply no reason to buy a stock that's trading for north of 24 times earnings unless further innovation is forthcoming. Cook says that there is. I believe him.

What a baby-shaker can teach you
In part, my trust stems from the way the App Store colors bright-red Apple in a deep shade of Microsoft blue. Consider the statistics:

  • More than 1 billion downloads.
  • More than 20,000 new applications added in the last quarter.

Some of those applications were likely worthless. Others were downright grotesque. Surely I don't need to describe to you how the now-notorious Baby Shaker game worked. Apple yanked this tasteless wonder from the store after special-interest groups complained loudly.

Yet Baby Shaker tells us something important as investors. Why would its judgment-challenged programmers target the App Store, rather than, say, Google's (NASDAQ:GOOG) Android Market? Because competing stores from Google, Palm (NASDAQ:PALM), Research In Motion (NASDAQ:RIMM), and Nokia's (NYSE:NOK) soon-to-be-launched Ovi service don't have the appeal that the App Store does. Competing stores don't run on the iPhone.

App Store appeal -- notably, the hope of iPhone-induced riches -- makes the device Microsoftian in its drawing power. Otherwise, developers wouldn't be flocking to the iPhone, as they did to Windows and the PC during their salad days. An innovator like Palm's forthcoming Pre could steal some of the iPhone's tailwind, sure, but with so much momentum, it's hard to envision anything doing serious damage to the iPhone's well-established franchise.

My franchise! No, my franchise!
And I do mean "well-established." Even if RIM's BlackBerry Curve outsold the iPhone in the first quarter, we know that the iEmpire is talking with Verizon (NYSE:VZ) about offering wireless service on the iPhone. AT&T's (NYSE:T) exclusive deal expires next year. If Ma Bell wants to re-up as is -- as the exclusive carrier -- she'll likely have to fork over even more than she already has.

Can you imagine how that'll juice Apple's already-stellar iPhone earnings? The company's cash from operations already gushed to $4.8 billion through the first six months of fiscal 2009, up 20% year over year.

When cash flows, the moat grows
Today, Apple has more than $28 billion in cash and investments at its disposal. An impressive cash cushion like that allows Apple to focus on long-term innovation -- the stuff that has Cook and his team so excited for the future.

We don't know exactly what those innovations will be, but it's a good bet they'll be built directly into silicon, created by Mark Papermaster and a team of chipmaking renegades acquired from PA Semi last year.

That brings us at last to the bottom line. A bet on Apple is a bet on the unknown … and possibly a bet on history. You can either assume that history won't repeat itself -- that Apple won't create another Mac, another iPod, another iPhone -- or you can bet that it will.

I'll side with history.

Brrrrrriiiiiinnnng! It's related Foolishness calling:

Discover the flipside to Tim's argument in Apple's favor by reading Rick's bearish rebuttal.

Google is a Rule Breakers recommendation. Apple is a Stock Advisor selection. Nokia and Microsoft are Inside Value picks. Try any of these Foolish services free for 30 days.

Tim had stock and options positions in Apple and Google and a stock position in Nokia at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy still says that an Apple a day keeps Wall Street away.