Apple's stock has surged 22% in 2026, outperforming the S&P 500's 11% gain and trading at a premium valuation of 38 times earnings. The company's services segment, which contributes 40% of its gross profit, has been a key driver of this growth, but recent slowdowns are raising concerns. In the fiscal 2026 fourth quarter, services growth decelerated to 10% year over year, down from 12% the prior quarter, with management forecasting 8% to 9% growth for the next quarter due to headwinds from third-party licensing and foreign exchange rates.
The services business is critical for Apple, as it boasts a 76% gross margin, nearly double the 39% margin on products. Despite a 13.5% year-over-year earnings growth in fiscal Q4, analysts expect long-term growth to dip below 11%. If services growth continues to weaken, investors may re-evaluate the stock's high valuation, potentially limiting its upside.
Other areas of Apple's business remain robust, with revenue hitting a record $479 billion in fiscal 2026, driven by a 17% increase in iPhone sales and a 24% jump in Mac sales. The company anticipates its strongest quarter ever, boosted by the launch of the iPhone Duo, its first foldable smartphone. However, the stock's current premium valuation hinges on sustained growth, making the upcoming quarter's services performance a key metric to watch.