There are two conflicting arguments about the future of the world's most valuable company. Over the past five years, Apple's shares have risen 218%, an annual gain of 26%. This increase undoubtedly far outstrips the gain of the Nasdaq Composite index.
Regardless of what the latest numbers show, it's important to understand Apple better. Here's one reason why this top FAANG stock is a no-brainer purchase.
Top products and services
It may be a smart idea to invest only in businesses that sell the best products and services. Anyone who is an Apple customer would probably agree that this statement is accurate for the company.
Apple boasts a high-end hardware lineup that includes the iPhone, which accounted for nearly half of the company's total revenue in the most recent quarter (ended July 1), the MacBook, Watch, AirPods and iPad. Together, those products account for 74% of Apple's sales.
It's hard to underestimate the success of the iPhone. Although it has a small share of shipment volumes, its pricing power allows it to command more than 80% of the smartphone industry's operating profits. And analysts believe that demand for the latest upgrade cycle outstrips supply .
Start-up services segment
Then there's the start-up services segment, which includes valuable software offerings such as Pay, TV+, iCloud and Music. This segment only accounts for 26% of revenue, but generally grew faster than the hardware division while posting much higher gross margins.
Of particular note is the success of Apple Pay. Since its launch in 2014, it has become the second most accepted digital wallet among the top 1,500 retailers in North America and Europe, only behind PayPal . But the fintech giant was founded in 1998, so Apple Pay's rapid rise is impressive.
The combination of Apple hardware and internally developed software is what creates a powerful ecosystem. It's what fosters customer loyalty and reduces the chances of someone switching to Alphabet's Android or another competing smartphone operating system.
The legendary Warren Buffett agrees. He argued that if you offered someone $10,000, with the only condition being that they couldn't use an iPhone again, they would most likely turn down the offer.
Apple's growth engines
Apple's obvious growth path is to increase iPhone sales. Nearly 1.5 billion people worldwide use iPhones. But there is plenty of room for growth: Apple's global smartphone market share is under 28%.
One of the key ways to attract new users is innovation. Some changes that could boost iPhone sales don't even require Apple to be that innovative. For example, it could follow competitors like Google , Samsung and Motorola by introducing a foldable display. But Apple could also gain market share by offering even faster processors and longer battery life.
The biggest driver of the company's growth in recent years has been services. This trend is expected to continue. In particular, Apple should be able to increase advertising sales. The long-rumored hardware subscription service could also serve as a major catalyst for growth.
