Released in early May, a week after most other Wall Street-listed tech giants, Apple’s first-quarter results came in ahead of analyst expectations. That saw the iPhone maker’s share price gain almost 5% on Friday, demonstrating investor approval. But are were markets justified in their optimism?

iPhone sales are holding up impressively amid tough economic conditions, despite the fact the new flagship models retail at around or above $1000. However, despite that and several other bright spots, the company saw an overall drop in revenue and net income (profit) compared to a year earlier.

That also means it is now two consecutive quarters of falling revenue and profit for Apple. Despite that, the technology company has seen its market capitalisation gain 39% this year. That means it is also now up over 10% over the past 12 months despite the bear market that hit growth stocks badly last year, dragging the Apple share price down almost 30% between last August and early January of this year.

Apple’s share price resilience also means it is still the world’s most valuable company, worth $2.75 trillion.  But with revenues and profits sliding for two consecutive quarters, could Apple’s growth story, arguably the most impressive in corporate history, be edging towards a conclusion? Or are we simply nearing the end of the iPhone growth cycle before a new period of growth begins, powered by new products and services?

These are important questions for long-term, more recent and even prospective Apple investors. Apple’s slowdown has been intermittently called several times since the first iPhone was launched in 2007 and before that when the iPod catapulted the company back into the big time after a period of decline. Those who have made the call have always been left with egg on their faces.

Even when iPhone sales numbers plateaued, growth has been achieved by hiking prices. There has to be some suspicion current smartphone costs don’t leave much more room for price increases as a future lever. However, that’s also something that has been erroneously presumed before.

But sooner or later growth will stall for Apple, at least for a period until a new catalyst emerges, if it does. And the higher the company climbs in the meanwhile, the steeper the eventual drop in valuation that might be eventually expected. Apple’s current share price of $173.57 is now just 4.7% off its all-time record high set in January 2022.

Can it really get much higher with income sliding? If it can, where will new growth come from? And how likely is it that we have already seen Apple’s valuation peak, or are close to that point, at least in the short to medium term?

The headwinds hitting Apple’s revenue and profit

Overall revenue was down last quarter but with $51.3 billion worth of iPhone sales over the first three months of the year, ahead of expectations for $48.8 billion, that still represented growth, albeit a modest 2%. Active device numbers are also at an all time high, which is a strong positive in the context of powerful brand loyalty.

However, the overall market for smartphones is contracting as consumers become generally less inclined to upgrade to the latest models as regularly as before. iPhone sales are unlikely to prove immune to that macro trend.

A squeeze on consumer spending resulting from tough economic conditions is already being felt across other Apple hardware lines. Income from Mac, iPad and other hardware sales such as Apple Watches and Airpod earphones failed to meet analyst forecasts for Q1, potentially also indicating trouble ahead for future iPhone sales.

Where might further growth come from for Apple?

The most obvious, and short term, catalysts for near to medium term valuation growth for Apple are share buybacks and increasing dividends. Last week’s earnings call saw a new $90 billion in share buybacks announced and a 4% hike in the company’s quarterly dividend payment.

Apple have traditionally favoured stock buybacks to increasing dividends significantly, as evidenced by the fact the yield still stands at just 0.53%, despite the fact the company generates huge amounts of cash. On Thursday it was announced that Apple’s cash pile, minus debts, stands at $57 billion.

In 2018, Apple’s Chief Financial Officer Luca Maestri vowed that the firm’s cash would eventually equal its debt. Despite big payouts to investors since, including the stock buybacks and increase to dividends announced last week, there is still some way to go for Maestri to reach that goal.

The cash also keeps flowing into Apple’s coffers at an impressive rate with analysts predicting about $100 billion of free cash flow after capital expenditure over the next four quarters. That’s already nearly enough to cover its newly-raised dividend and $90 billion buyback program, without touching the balance sheet. The company’s business model of selling iPhones and services faster than it pays suppliers adds to its cash pile.

Cash richness offers Apple opportunities

One reason some suspect Apple maintains such a strong cash position is the memory of the tech giant’s close call with bankruptcy 20 years ago before the iPod then iPhone revived its fortunes. The company may well wish to provide itself with a big buffer in an attempt to insure that never happens again, even if there is a sticky period between product cycles.

But while that may be true to some extent, the company also won’t just sit on its cash. That means it either has to keep returning lots of it to shareholders or, more likely based on the company’s historical approach, invest it in growth.

The question then becomes, invest it in what? Services are becoming increasingly important to Apple’s pursuit of continued growth. Despite missing analyst expectations for the last quarter the services business generated record revenues of $20.9 billion. Apple now has more than 975 million paid subscriptions across its services, up 150 million over the past year.

Within the services category, financial services look like the biggest growth opportunity. Apple customers typically come from wealthier demographics and show high levels of brand loyalty. Apple Pay is already hugely popular but has lots of potential for further growth and there is significant potential to use a chunk of the cash pile to finance the roll out of a wider range of financial products.

Apple already offers a credit card through a joint venture with Goldman Sachs and could well start to add additional consumer finance products to that portfolio, such as insurance products and loans.

Emerging markets are key

Apple also still sees plenty of growth potential in emerging markets, particularly India. It hopes these markets will keep iPhone and other hardware sales strong while opening up potentially lucrative new opportunities to sell services. However, it will take time for service revenues per user in markets such as India to build up to levels similar to those in developed economies.

Should you buy Apple stock now?

Following last week’s earnings report, Refinitiv data shows at least 13 analysts raised their price targets for Apple’s stock with the median target climbing to $180 from $170 before the report. That represents an upside of just 3.7% on the current valuation and doesn’t leave a lot of room for error.

Apple is undoubtedly a portfolio cornerstone stock current holders should almost certainly stay invested in for the foreseeable future. It’s an incredibly high quality company thanks to its ironclad balance sheet, unique brand leverage, long term record for continued innovation and further opportunities to grow services revenues and market share in developing economies.

For new investors, however, the current share price may represent a risk with upside limited and a tough economic environment potentially weighing on stock markets later in the year. It might be worth holding off for now and looking for buying opportunities if the share price slides later in 2023 as a result of broader market sentiment.