Apple services revenue rose 14% to $24B with margins near 70%. A $100B run rate by 2026 is in play. The iPhone AI launch and EU DMA ruling are the next catalysts.
Apple's services segment generated $24 billion in revenue last quarter, up 14% from a year earlier. The division now accounts for roughly a quarter of total sales.
The services umbrella covers the App Store, Apple Music, iCloud, Apple Pay, and licensing. Each line carries gross margins near 70%, compared with Apple's corporate average of about 45%, the CFO told analysts on a post-earnings call.
The margin gap has a compounding effect on profit. Every dollar of services revenue contributes roughly 70 cents to gross profit. A dollar of hardware revenue contributes about 36 cents. Services grew 14% last quarter against roughly 4% product revenue growth, so the profit mix is tilting toward the higher-margin stream.
Morgan Stanley analysts said services revenue could reach $100 billion annually by 2026. At prevailing multiples for subscription software companies, that stream alone would be worth more than $2 trillion, they estimated.
Apple faces a regulatory overhang. The European Union's Digital Markets Act may force changes to the App Store's commission structure. Apple told investors in a filing that the DMA "may require us to change our business practices." A court ruling on the company's challenge is expected later this year.
The September iPhone launch includes new AI features that could push services adoption higher through increased iCloud storage and demand for Apple Intelligence, the company said. Apple spent $2.3 billion on content and services infrastructure last quarter, the CFO added.
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