The business
Apple sells devices (iPhone, Mac, iPad, Watch, AirPods) and the services that run on them: the App Store, iCloud, Apple Music, Apple Pay, AppleCare and the payment it receives for making Google the default search engine. It designs its own chips (Apple silicon) and its own operating systems, and contracts out manufacturing.
Revenue in FY2025 (year ending September) was $416.2B, up 6.4% after two flat years. Services are the growing, higher-margin part; iPhone is still about half of revenue.
Moat and switching costs
The moat is the ecosystem: iMessage, iCloud photos, the Watch, the apps already bought and the way the devices work together make an iPhone owner very likely to buy another. Apple's own silicon lets it ship performance per watt that rivals buying off-the-shelf chips find hard to match.
The services moat is partly regulatory: App Store fees and the Google default payment are both under pressure from courts and regulators in the US and Europe.
How the technology shows up in the numbers
Apple converts revenue to cash with little capital: free cash flow was $98.8B in FY2025 and return on invested capital about 95%. Almost all of it goes back to shareholders: $90.7B of buybacks in FY2025, shrinking the diluted share count 2.6% a year.
That is the engine of the per-share story. Revenue grows slowly; earnings per share grow faster because there are fewer shares every year (EPS was $7.46 in FY2025).
Thesis
Apple is a toll on a billion of the world's most valuable consumers, and the buybacks compound per-share value even without growth. The risk is paying a growth multiple for a business growing at 2 to 6%.
We would own it below our stated price, where the buyback yield alone does much of the work.
Risks
- Services regulation: App Store fee rules and the Google search payment, both large and nearly pure profit.
- China, for both sales and manufacturing.
- AI: if the important software of the next decade runs in someone else's assistant, the device matters less.
- Paying up: buybacks at a high price return less to remaining owners.
What would change our mind
- Services growth falling below 5% for several quarters.
- A court or regulator ending the Google default payment.
- iPhone upgrade cycles lengthening further without services offsetting it.
