Technology giant Apple (NASDAQ:AAPL) has been around for a while and has generated market-crushing returns over its long and storied history. However, some investors and analysts now believe it is no longer worth investing in the iPhone maker. The market capitalization now exceeds $3 trillion, limiting its upside potential, especially since Apple’s biggest money maker – the iPhone – is no longer generating the kind of sales growth that Apple has. ‘one year to the next than before.
While these concerns are legitimate, there are still good reasons to buy Apple stock and hold it for good. Let’s look at three of those reasons.
1. Apple’s culture of innovation
How does a business stay relevant for decades? It’s usually not enough to simply offer the products or services that are needed. Even in industries like healthcare, companies must constantly innovate to avoid becoming dinosaurs. This is equally true—and arguably more so—in the technology industry where Apple operates. The company has remained relevant and successful for so long in large part because it has created a culture centered on innovation.
Apple doesn’t need to be first to market. He cleverly takes existing products and adds his own touch to them. This is what he did with the iPhone and many other technologies. More recently, the company finally announced its artificial intelligence (AI) projects: It will add various AI features to eligible devices (including iPhone 15 Pro and beyond). While some observers feared that Apple was falling behind in the AI ​​race, the company made a significant decision.
There will undoubtedly be more to come. Beyond AI, Apple is investing heavily in research and development (R&D) to avoid becoming a dinosaur — and, in fact, to remain highly relevant for a long time, as it has throughout its history. That’s a great reason to consider the stock.
2. An incredibly deep ecosystem
Apple’s success has paid off in many ways, one of them being that it now has a large ecosystem of devices and customers who use at least one of them; more than 2 billion Apple devices are in circulation. It is difficult to exaggerate the value of this clientele.
The company knows this too, which is why it is developing its services segment, through which it offers a variety of services, including Apple Music and Apple TV. Apple has over 1 billion active paid subscriptions.
Here’s another benefit of Apple’s strategy of increasingly relying on services: While making and selling hardware is a relatively low-margin business, the opposite is true for the services it provides to its vast customer base. So, over time, there’s a good chance that gross and profit margins will improve. That’s great for the company.
It’s true that the services division still doesn’t represent a substantial portion of its revenue. In the second quarter of its fiscal 2024 (which ended March 30), Apple’s services revenue was $23.9 billion, about 14% more than the same period a year earlier.
Apple’s total sales of $90.8 billion fell about 4% year over year, so services accounted for only about 26% of total sales. But that figure has generally been rising over the years; it was just 10% in the third quarter of 2015. That trend bodes well for Apple’s long-term prospects.
3. Apple’s competitive advantages
Even though Apple benefits from a deep ecosystem, can it retain most of its customers? Thanks to its competitive advantages, it should be able to do this. Apple’s business benefits from the network effect, switching costs, and a strong brand, all of which are important sources of competitive advantage.
Apple’s network effect is reflected in its App Store: the more people use it, the more valuable it becomes to developers, and vice versa. This is the hallmark of the network effect: the value of services increases with usage.
Apple devices also have features that other smartphones or tablets don’t have, making communication between Apple devices extremely convenient. Leaving the ecosystem means leaving them behind, hence the switching costs.
Finally, Apple is consistently ranked among the world’s most valuable brands. These characteristics suggest that its business will remain strong despite fierce competition.
Buy and forget
Like any company, Apple faces difficulties: declining iPhone sales in China, antitrust lawsuits, etc. But the company has plenty to attract investors, notably thanks to an excellent dividend program. If this interests you, look beyond Apple’s recent struggles and consider sticking with the company for good.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.
3 Reasons to Buy and Hold Apple Stock for Life was originally published by The Motley Fool
