However, concerns remain over the demand for Apple's new iPhone 15 and the company's concentration in China in regard to its iPhone supply base. Apple's stock is currently trading at a 7.76x P/S ratio, above its 5-year median P/S ratio of 6.59x, with the 8.0x a level that Apple has struggled to hold on to since spiking to it in 2020. Apple is also trading at a nearly 28.8x forward P/E ratio, another valuation level that it has struggled to hold on to.
Key takeaways:
- Apple's Services segment has seen significant growth, with its share of revenue rising from under 15% five years ago to 22.2% at the end of September. The segment's annual run rate has increased from ~$40 billion to over $85 billion.
- Services growth has been broad based, with new revenue records across a range of different offerings. The segment has multiple growth outlets to lever in the future, from growth in paid subscribers, AI, and price hikes.
- Apple recently enacted some price hikes for News+, Arcade, and its One bundles, which could generate an additional ~$5 billion in annual revenue. However, there are concerns over the holiday launch trajectory of Apple’s new iPhone 15 and the company's concentration in China.
- Services is rapidly becoming one of Apple’s most important top-line segments, and arguably is the most important for Apple’s bottom-line, given its outsized role in boosting Apple’s gross margin. If Services continues to grow at its current rate, it could be generating approximately $164 billion in revenue by FY28.