- Apple Services is growing into a larger source of high-margin earnings, while aggressive buybacks are helping support per-share growth as investors assess the next phase of AAPL stock.
Apple Inc. (NASDAQ: AAPL) is heading deeper into fiscal 2026 with two established financial drivers increasingly important to its long-term growth story: Services and shareholder returns.
The company's latest June-quarter results showed revenue of $109.4 billion, up 16% year over year, while diluted earnings per share increased 29% to $2.02. iPhone, Mac and Services revenue all reached June-quarter records.
Services is particularly important because of its profitability. Apple's fiscal third-quarter filing with the US Securities and Exchange Commission showed a Services gross margin of 75.6%, compared with 40.1% for Products. That difference means continued Services expansion could have an increasing influence on Apple's overall earnings even if hardware growth becomes more moderate.
Apple Services Growth Is Changing the Revenue Mix
Apple's Services business includes the App Store, advertising, cloud services, AppleCare, Apple Pay and digital content. During the June quarter, Services generated $30.7 billion in revenue, according to Apple's regulatory filing, while Services gross profit reached $23.2 billion.
For the first nine months of fiscal 2026, Services generated $69.96 billion in gross profit, up from $60.67 billion in the comparable period a year earlier. Its gross margin for that nine-month period reached 76.3%.
The importance of the ecosystem is also visible in Apple's expanding payments business. The company's recent Apple Pay launch in India gives it another opportunity to monetize its installed device base, although the initial rollout supports only eligible Axis Bank Visa and Mastercard credit cards.
Advertising is another area investors are watching. Apple has been expanding its advertising operations, including plans to introduce paid advertising within Maps in the US and Canada. That creates potential for additional Services revenue, but the growth opportunity comes with regulatory and competitive risks. Changes to App Store economics and consumer behavior could affect the segment's future trajectory.
Artificial intelligence adds another layer of uncertainty. Apple introduced its next-generation Siri AI during WWDC26, but investors are also assessing whether AI assistants could change the way consumers discover applications and services. Morgan Stanley analyst Erik Woodring recently cut his Apple price target to $355 from $360, arguing that AI agents could eventually disrupt portions of Apple's App Store and Services model.
The issue matters because Apple has historically benefited from controlling the customer relationship between hardware, software, and applications. A major shift toward third-party AI agents could potentially change that relationship.
The company's position in the broader technology stock market therefore differs from companies whose growth depends heavily on AI infrastructure spending. Apple is trying to monetize AI primarily through its existing ecosystem while maintaining its hardware business.
Buybacks Give Apple Stock Another Source of Per-Share Growth
Apple's second major financial lever is its share-repurchase program. The company repurchased 215 million shares for $61.8 billion during the first nine months of fiscal 2026, according to its June-quarter 10-Q.
Apple had also authorized another $100 billion in share repurchases when it released its fiscal second-quarter results in April. The effect is straightforward: when a company buys back shares, future earnings are distributed across a smaller share base.
Apple's diluted weighted-average shares fell to 14.75 billion during the first nine months of fiscal 2026, compared with 15.05 billion in the same period of fiscal 2025. That reduction helps explain why earnings per share can grow faster than total net income when operating profits and buybacks move in the same direction.
Apple's net income reached $29.8 billion in the June quarter, compared with $23.4 billion a year earlier. Diluted EPS increased to $2.02 from $1.57.
Buybacks, however, cannot replace operating growth indefinitely. The long-term case for Apple stock still depends on the company generating enough cash to fund repurchases while investing in products, services, and artificial intelligence.
Hardware costs are another consideration. Apple's earlier Mac and iPad price increases showed how higher memory and storage costs linked to the broader AI buildout can affect its product economics.
Valuation is also becoming more important after Apple's strong stock performance. Morgan Stanley's latest $355 target illustrates how analysts are beginning to question how much additional upside can come from the current earnings trajectory.
At the same time, Apple's financial position remains closely tied to broader market conditions. Rising Treasury yields have already become a major factor for technology-stock valuations, as shown by the recent stock market pressure from higher Treasury yields.
For Apple, the long-term equation is therefore becoming more balanced. Services can provide faster-growing, higher-margin revenue, while buybacks can continue supporting earnings per share. But investors still need sustained hardware demand, successful AI execution, and enough underlying earnings growth to justify the stock's valuation.
The next stage of the Apple stock outlook will ultimately depend less on buybacks alone and more on whether Apple can continue turning its enormous installed base into higher recurring revenue without weakening the economics of the ecosystem that made that installed base valuable.