$200 billion. A behemoth sum in Apple’s coffers, courtesy of iPhone sales. While the masses view this as the carrot that makes the tech giant the world’s most valuable company, the reality is far more intricate.

Delve deeper into Apple’s financial ecosystem, and one stumbles upon a realm where the company channels substantial resources into a business often overlooked by investors.

When it comes to Apple, the common instinct is to associate it solely with iPhones. As previously acknowledged, these smartphones indeed rake in colossal revenue for the company. However, there’s a catch: Apple’s iPhone sales have stagnated for nearly a decade.

Image source: Getty Images.

The shining star in Apple’s recent growth narrative is its services segment. This unit draws revenue from diverse streams like the App Store, AppleCare+, advertising, and subscriptions to apps such as iCloud+, Apple Fitness, and AppleTV+.

What’s more, to the delight of Apple and its shareholders, the services division boasts a significantly higher profitability margin than the product segment. While Apple garners a gross profit of approximately 33% from its products, the services arm flaunts an impressive 75%.

The implication is that Apple is zealously nurturing its services domain, recognizing it as the primary driver of value within the organization.

So, why did Apple splurge $20 billion on a realm seemingly invisible to the masses?

Apple’s $20 Billion Bet on Apple TV+ Productions

Apple remains reticent about divulging the nitty-gritty of its services division’s earnings and expenditures, leaving investors dependent on conjectures.

Reports from Bloomberg unveil that Apple funneled over $20 billion into Apple TV+, morphing into a player vying against industry behemoths like Netflix, Amazon, and Disney in the fierce ‘streaming wars’ battleground.

However, the extravagant outlay seems to have yielded underwhelming returns. While Apple clinched a Best Picture accolade in 2022 for “Coda,” other high-budget endeavors faltered to propel Apple TV+ viewership. According to sources, Apple TV musters a monthly audience equivalent to Netflix’s daily viewership.

Speculation alludes to Apple’s management tightening the purse strings and axing budgets for its streaming ventures, pivoting attention towards fresh artificial intelligence (AI) tools to amplify services revenue further. AI investments, although steep, herald a future where Apple’s splurging days on Apple TV could be history.

Apple ventured into streaming’s treacherous waters, draining coffers that might have cascaded into AI. Yet, the realization dawns that this resource misallocation has not gone unnoticed by Apple, with pragmatic steps being taken to curtail lavish streaming expenditures. Consequently, Apple’s strategic focus has veered towards bolstering its services and AI enterprises: the former propelling its current growth trajectory, the latter carving pathways to its future.

Should you invest $1,000 in Apple right now?

Before diving into Apple’s shares, ponder this:

The Motley Fool Stock Advisor analyst consortium has pinpointed what they discern to be the subterranean gems hiding in the tech giant’s labyrinth.