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Will Apple be Able to Hold on to its $1 Trillion Crown?

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On Aug 2, Apple, Inc (AAPL - Free Report) emerged as the first publicly traded U.S. company to have $1 trillion in market cap. Speculation has long been rife as which U.S. company will be the first to reach this milestone. However, on Thursday, Apple put an end to all the speculation, with its shares increasing 2.9%.

Apple’s shares have been rallying since it reported third-quarter fiscal 2018 earnings on Jul 31, wherein the company posted robust iPhone and Services segment revenue growth. Undoubtedly, iPhone has been one of the key revenue generators for the company. However, the company also faces a lot of challenges given that iPhone sales have grown only marginally year over year.

Apple Reaches New High

There has long been speculation over which company will be the first to reach the $1 trillion mark in market cap. Amazon.com, Inc. (AMZN - Free Report) has been the closest rival to Apple in the race with the e-commerce giant crossing the $900 billion in market cap in July. Google parent Alphabet, Inc. (GOOGL - Free Report) too wasn’t far behind in the race with the company’s market cap at $845 billion.

Notably, the race to $1 trillion had primarily been confined to tech giants. The iPhone maker’s shares have been on a rally since it reported fiscal third-quarter results on Jul 31. Apple reported total iPhone unit sales of 41.30 million on the back of iPhone X, iPhone 8 and iPhone 8 Plus.

iPhone has been the key revenue generator for the company, particularly iPhone X, despite being priced at $999. However, it’s the Services segment that has over the last few years become one of the biggest revenue generators for Apple.

Services, including revenues from Internet Services, App Store, Apple Play, Apple Music and AppleCare, and licensing and other services jumped 31% year over year. Both Amazon and Microsoft sport a Zacks Rank 1 (Strong Buy). Apple carries a Zack Rank #2 (Buy), while Alphabet has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Challenges Aplenty for Apple

Apple’s recent milestone definitely has reinstated investors’ confidence in tech stocks, which saw a slump over the last week with major FAANG companies like Facebook, Inc. (FB - Free Report) and Netflix, Inc. (NFLX - Free Report) posting disappointing numbers. That said, Apple’s growth has primarily been on sales of iPhone. But it needs to be mentioned that the growth in iPhone’s sales too has been slowing. Apple sold only 1% more iPhone than a year ago.

The good thing has been that Apple too realizes this and has started focusing on other areas. Services segment is a priority for Apple, which helped the company this quarter too. Apple Services’ revenues came in at $9.55 billion, beating the consensus mark of $9.34 billion and accounting for 17.9% of sales. Moreover, Apple Music and Cloud Services revenues grew 50% each year over year.

Further Diversification

It seems Apple is diversifying further to stay ahead in the race. The company is investing in original content and developing its own streaming service. The iPhone maker is already developing a number of TV shows, revolving around big names like Steven Spielberg, Resse Witherspoon and Manoj Night Shyamalan.

Understandably, this is in a race to tap the growing online streaming market that so far has been dominated by Netflix, Amazon and Hulu. Moreover, the company also plans to launch a cheaper as well as an expensive version of iPhone X in the days to come so as to reach a broader customer base. iPhone has proved its worth as a tech giant but Apple now needs to retain the newly achieved laurel to stay ahead in the race.

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