Apple Stock (AAPL) Faces Threat of Service Revenue Plunge

Business Insider

30-07-2025

Apple (AAPL) stock may be surging but the main driver of that leap is increasingly coming under threat.
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According to an article in the Wall Street Journal, tech giant Apple's share climb over the last few years – see chart below – has come off the back of not its well-known iPhones but its services division.
Services are the Core
According to figures from IDC, Apple shipped 46.4 million iPhones globally in the second quarter of 2025, which is down on the 61 million it sold in the second quarter of 2015.
As of 2025, it has a 15.7% market share and second place in the worldwide smartphone market. The company saw 1.5% year-over-year growth in Q2 2025, contributing to an overall market that edged up 1.0% to 295.2 million units.
What has been really driving the Apple growth is the service side of its business such as iCloud storage and other subscriptions, paid apps and app advertising. Payments related to web search have quintupled since 2015, while device revenue has grown less than 40%.
According to Bank of America, services generate gross profit margins over 70%, compared with between 30% to 40% for hardware sales.
Bank of America analyst Wamsi Mohan believes that Apple's choice to break out the rapidly growing, highly profitable services segment is 'a reason why investors started paying a bigger earnings multiple for Apple shares.'
The growth of services as seen on the chart below has been on the rise since 2020, although the rate is starting to slow.
Risks on the Horizon
There could be further risks on the horizon which could see it heading into reverse.
One of those revolves around the fees Apple collects on sales in its App Store. Bank of America estimated that these account for a third of Apple's annual total services revenue. However, some developers believe the fees are too high and have asked regulators to force changes.
Indeed, one California judge has ruled that Apple must allow app developers to sell their iPhone services from their own websites. That could lead to Apple losing 10% of its net profit in the worst-case scenario, although whether developers would make the shift is unlikely.
Another element at risk is the money Alphabet-owned Google (GOOGL) pays Apple to ensure it gets to be the default search provider in Apple's Safari web browser.
It accounted for about 6% of Apple's overall revenue in the 12 months through March, according to Bank of America. But because it has essentially no costs associated with it, it falls straight to the bottom line, where it accounts for 19%, or nearly a fifth, of Apple's total operating profit.
It is also under pressure after the U.S. Justice Department won its antitrust case against Google. The department also asked the judge to throw out the Google and Apple contract.
That move is being considered by the judge, which reportedly has led to Apple executives ''losing sleep.'
The Apple dream could quickly become more of a nightmare for investors.
Is AAPL a Good Stock to Buy Now?
On TipRanks, AAPL has a Moderate Buy consensus based on 13 Buy, 11 Hold and 1 Sell ratings. Its highest price target is $275. AAPL stock's consensus price target is $229.11, implying a 7.89% upside.