Apple Inc. (NASDAQ:AAPL) sells devices and earns additional revenue through subscriptions, app transactions, advertising, and licensing. The fiscal third quarter of 2026 brought another record installed base. If customers keep iPhones longer, can spending between upgrades compensate for delayed hardware profits?
Keeping Customers Must Pay for the Ecosystem
Apple Inc. combines devices, software, cloud storage, and purchased content. Leaving means changing familiar services and workflows, helping protect retention. Owners can keep paying for storage or entertainment while using older phones. Maintaining that convenience requires software updates, security, and support. These qualities help explain why Apple remains a closely watched name among investors exploring the 10 Most Active Blue Chip Stocks to Buy Right Now.
Apple Inc. increased quarterly Services revenue 12% to $30.7 billion. Services generated roughly $76 of gross profit per $100 of revenue, versus $40 for products overall, before research, marketing and corporate overhead. The opportunity is substantial, but customer loyalty must earn more than it costs to maintain.
More Earnings, Still a Steep Admission Price
Apple Inc. trades at 36x forward P/E and 39x trailing P/E. Trailing P/E reflects reported earnings; forward P/E prices in forecasts. Even on anticipated profits, the shares command a substantial multiple.
Analysts project adjusted EPS of $9.59 in fiscal 2027, up approximately 9% from the fiscal 2026 estimate of $8.83. Services growth and repurchases can lift earnings per share. However, a higher stock multiple means each buyback dollar retires less underlying earnings.
Apple Inc. reported quarterly EPS of $2.02, including $0.11 from tariff refunds. Those refunds also lifted gross margin by approximately two percentage points. Sustaining growth requires profitable sales and cost control after that benefit fades.
Quarterly iPhone revenue rose 22%, so recent results benefited from stronger hardware sales. Existing subscriptions would usually continue after an upgrade. Longer ownership must therefore improve retention or paid-service spending enough to compensate for delayed device profits; merely extending an existing subscription does not automatically create incremental value.
The Customer Franchise Costs More Than Before
Apple Inc. trades above its 31x forward P/E in September 2024 and 32x in September 2025, around its fiscal year-ends. The higher price for expected earnings requires stronger profits throughout the ownership cycle.
Services gross profit increased approximately $2.5 billion in the latest quarter, while companywide research and development spending rose approximately $2.9 billion. Higher infrastructure costs, including AI investments, and staffing drove that increase. Development supports hardware and services, making recurring relationships valuable when they produce lasting cash growth.
Apple Inc. has also changed app-payment arrangements. U.S. developers can direct customers toward alternative purchasing mechanisms, while European changes include alternative payment processing. Purchases routed through those channels can generate lower commissions or none at all. Customers may remain loyal while producing less fee income, weakening the earnings needed to support today’s premium.
A Handset Premium Needs More Than Loyalty
Samsung Electronics Co., Ltd., the closest smartphone and consumer-device peer, trades at 5x forward P/E, versus 36x for Apple Inc.. The wide gap reflects different earnings sources: the Korean rival depends heavily on memory semiconductors as well as Galaxy devices.
Strong AI-related memory demand and higher chip prices lifted semiconductor earnings in the second quarter, while rising component costs pressured mobile profitability. The low multiple is therefore sensitive to the memory cycle: unusually strong earnings can make a semiconductor business look cheap before profits retreat.
The iPhone maker generated $117 billion of operating cash over nine months and spent $6.8 billion on capital expenditure, leaving $110.2 billion. That cash generation and recurring Services revenue support a premium. At 36x, however, service spending and retention still need to deliver durable profit growth when customers delay upgrades.
Conclusion
Apple Inc. offers a powerful customer franchise, but 36x forward earnings looks demanding. Among Most Active Blue Chip Stocks to Buy Right Now, its case depends on increasing profit per retained customer after development and support costs. Slower upgrades without stronger service spending would weaken that case.
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This article is originally published at Insider Monkey.
