Warren Buffett's Favorite Stock That's Up 107,400% Since 1990 Is Still a Buy. Here's Why.

Apple reported Q2 fiscal 2026 sales of $111.2 billion, up nearly 17% year over year, with EPS rising 22% to $2.01 and iPhone revenue increasing almost 22% to about $57 billion. Services revenue also hit a record near $31 billion, up 16%, while the company highlighted AI-enabled product upgrades and future launches such as a more personalized Siri. The article argues Apple remains attractive despite a 32.8x forward P/E and ongoing risks from China exposure, regulation, and AI competition.

Analysis

Apple’s setup is less about “is the iPhone dead?” and more about whether the installed base can keep compounding services monetization faster than hardware cycles decelerate. The important second-order effect is that AI features bundled into the device can extend replacement urgency without requiring Apple to win the frontier-model race; that lowers product risk while preserving pricing power. If that thesis holds, the market may be underestimating the duration of gross-margin expansion from mix shift toward services and premium devices.

The bigger winner may be the ecosystem, not the handset. Every incremental device sold or upgraded expands the addressable base for App Store take-rate, subscriptions, payments, storage, and future AI add-ons, which compounds far beyond the initial hardware margin. That also puts pressure on competitors in mid-premium Android and Windows laptops, where Apple’s cheaper laptop and potential foldable handset can poach “good enough” buyers without needing category leadership on specs.

The main risk is timing mismatch: AI-driven demand lift may be real but slower than the stock’s valuation already discounts, so multiple compression can dominate if unit growth stalls for even 1-2 quarters. Regulatory pressure is the other clean downside catalyst, because any restriction on App Store economics would hit the highest-quality part of the story first, not the lower-margin hardware line. In contrast, a materially better Siri or a successful foldable launch would be a catalyst over months, while the near-term market reaction depends on whether services re-accelerate again in the next print.

Consensus looks a bit too anchored on Apple as a mature hardware annuity. The overlooked angle is that Apple may be using AI defensively to protect churn and offensively to widen its ecosystem moat, which is more durable than a one-time product cycle pop. The valuation is rich, but for a business with this mix and balance-sheet flexibility, the premium can persist until there is evidence that services growth or device attach rates are peaking.

Key Decisions for Investors

• Maintain a tactical long AAPL, but only on pullbacks; prefer sizing for 3-6 month hold as a quality-growth/AI-enablement compounder rather than a momentum chase. Risk/reward improves if forward P/E compresses toward the low-30s-to-high-20s while services growth stays mid-teens.
• Pair trade: long AAPL / short a basket of slower-premium hardware peers or low-quality consumer tech proxies for 2-4 quarters. The thesis is that Apple’s ecosystem monetization can outperform despite slower unit growth, while weaker hardware franchises remain more exposed to upgrade fatigue.
• Buy AAPL call spreads into the next catalyst window around Siri/AI product updates, targeting 6-9 months. Structure for upside from a credible AI feature cycle while capping premium outlay if the launch disappoints.
• Watch for regulatory headline risk; if App Store or platform remedies intensify, reduce exposure quickly. That risk would hit services multiple first, so it is a cleaner de-risk trigger than waiting for revenue slowdown.
• For event-driven traders, sell elevated vol into product launch hype only if implied volatility spikes above realized levels; otherwise stay long optionality. The stock’s upside is more likely to come from a sequence of modest beats than one single transformational event.