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Apple's Valuation Is Driven by Services but Wearables Are Driving Its Topline

Daniel Laboe

Apple AAPL is trading at a forward P/E multiple that has been propelled to its highest level in almost 10 years. This is due to the business evolving from hardware-focused to service-centric, creating more reliable high-margin revenues.

Services such as AppleCare, iCloud, and Apple Music combined with the recently released Apple TV+ and Apple Arcade. These most recent subscription offerings are driving a large portion of this stock’s growth this year, with long-term consistent subscription revenue being an attractive offering for investors.

Service revenue has been decelerating, and the firm’s illustrious AirPods have been taking center stage. It seems that 1 out every 3 people I see are wearing these small white pods, and that figure continues to grow.

The new AirPods Pro, released at the end of October, is Apple’s hottest holiday item. The Airpods Pro are being priced at the highest-end of the wireless headphone market, yet stores can’t keep them on the shelves. This product is a reflection of Apple’s original business strategy: selling quality hardware at a premium price.

Wearables grew over 40% this past fiscal year (ending in September), and services have decelerated to only 16%. Investors have been trading Apple shares up on the notion that its services are the future of the business, but its hardware is still driving the growth.

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