What it does · how it got here · where it operates
Apple is the easiest business on this whole board to explain to a ten-year-old — because the ten-year-old probably wants one of its products. Apple designs the iPhone, and the family of devices and services that orbit around it — the Mac, the iPad, the Watch, the AirPods — and, increasingly, the subscriptions and fees that flow from the billion-plus people who live inside its software. It sells beautifully made objects that people love, at prices only a beloved brand could command, and then quietly collects a toll every time those people use them. It is a consumer franchise of the very highest order, wrapped in a technology company's clothes — which is exactly why Buffett, who spent his life avoiding technology, made it his largest holding.
Founded in a Cupertino garage in 1976, Apple is today the most valuable company on earth, worth about $4.3 trillion. In the year to September 2025 it sold $416 billion of products and services and earned an almost incomprehensible $112 billion in profit — more than any company in history has earned in a year. And here is the number an owner should hold onto: over the past decade it has used that cash to buy back nearly a third of itself, shrinking its share count from ~21.9 billion to ~14.9 billion. The stock sits near $294, a whisker below its all-time high.
"It's probably the best business I know in the world… a wonderful business. I don't think of Apple as a stock. I think of it as our third business." — Buffett, who then, in 2024, sold about two-thirds of it
That tension — the most admiring words Buffett ever gave a company, followed by the largest sale he ever made of it — is the puzzle at the heart of this report. The business did not get worse. The price got dearer, the concentration got larger, and a canny old investor decided to lock in a magnificent gain while the tax rate was kind. Our job is to weigh the same two things he did: an extraordinary franchise, and a far-from-extraordinary price.
| Founded | 1976 · Cupertino, California (USA) |
| Sector / Industry | Technology · Consumer Electronics |
| The engine | iPhone (~half of revenue) + a growing Services toll |
| Install base | ~2.3 billion active devices worldwide <span class='xr-approx2'>(approx.)</span> |
| Revenue (FY2025) | $416 B |
| Market capitalisation | ~$4.3 T — the world's largest |
How a device-maker became a toll collector — and whether you'd understand it
The genius of Apple's model is a quiet inversion of the old razor-and-blades trick. Let me walk the machine end to end:
Here is the part that turns a good hardware business into a great franchise: once you own an iPhone, a Watch that pairs only with it, AirPods that switch seamlessly, photos in iCloud, and blue-bubble iMessages to your friends, leaving Apple means leaving all of it at once. That is a switching cost paid in daily friction, and it is why ~90% of iPhone owners buy another iPhone. On top of that install base — over two billion active devices — Apple now runs a Services toll booth (the App Store, subscriptions, payments, advertising) that earns roughly 70-cent margins and grows far faster than the hardware. The device sells the ecosystem; the ecosystem sells the services; the services deepen the lock-in. It is a beautiful, self-reinforcing loop.
The products, the Services engine, and where in the world
Roughly half the money still comes from one product — the iPhone — but the fastest-growing and most valuable slice is the Services toll built on top of it. [FMP's segment feed was stale (FY2023); the mix below is approximate to the current year.]
The shape of the business is changing in the owner's favour. Hardware is mature — iPhone unit growth is roughly flat, and the excitement now is in price and mix, not volume. But layered on that vast, loyal install base is a Services business growing at double digits with ~70% margins, which is why Apple's overall gross margin has climbed from ~39% a decade ago to ~48% today. The bull case for the next decade is not "sell more iPhones" — it is "sell more to the two billion people who already own one." Whether that, plus the buyback, is enough to justify today's price is the question of Part VIII.
Brand, ecosystem switching costs, and unmatched scale
Apple's moat is one of the widest and most durable in all of business, and it is fed by three springs at once — a rare thing.
The brand. Apple is, by most measures, the most valuable brand on earth. It confers pricing power that no rival smartphone can touch, and an emotional loyalty closer to a luxury house than an electronics maker. This is the intangible-asset moat Buffett prizes — the same one that lets Coca-Cola charge a premium for sugar water.
The ecosystem — switching costs. This is the deep one. The tighter a customer is woven into iPhone-plus-Watch-plus-AirPods-plus-iCloud-plus-iMessage, the more painful it is to leave — you would abandon your photos, your messages, your purchased apps and the seamless way it all connects. That friction is why loyalty runs near 90%, and it compounds with every new Apple device a household buys.
Scale. Two billion devices and a decade of custom silicon give Apple a manufacturing and R&D scale — and an App Store network of developers — that a challenger could not replicate at any price.
How durable? Wide and stable — with one modern question mark. This moat is not eroding the way tobacco's is, nor being freshly stormed the way Salesforce's is. It is broad and calm. The one cloud on the horizon is AI: if the way people interact with a phone shifts from tapping apps to talking to an assistant, the value could migrate from Apple's ecosystem to whoever builds the best intelligence — and, as Part V admits, that is the one race Apple is not obviously winning.
The high-margin toll · and whether Apple is behind on artificial intelligence
Two forces will decide Apple's next decade, and honesty requires taking both seriously — one a clear strength, one a genuine worry.
How much should the AI worry weigh? Less than the headlines suggest, in my judgement — but not nothing. Apple has a long history of arriving late and winning anyway: it did not invent the smartphone, the tablet, the music player or the smartwatch, yet it made the best version of each. Its advantages — two billion devices, custom silicon built for on-device AI, and a brand people trust with their most private data — are formidable weapons for the AI era whenever it chooses to deploy them fully. But I will not pretend to certainty: if the interface to computing genuinely shifts to conversation, and someone else owns the best assistant, then the ecosystem lock-in matters a little less each year. It is the one thing about this fortress I would watch closely — and it is part of why I want a better price before getting excited.
Cook the operator · the greatest buyback in history · Buffett's stake, and his trim
On the thing Buffett cares about most — what management does with the cash — Apple is close to a model citizen, with one honest asterisk about succession.
Here is capital allocation as art. Because Apple earns far more cash than a business this asset-light can reinvest, it has returned the surplus on a scale no company has ever matched — buying back nearly a third of all its shares in a decade (from ~21.9 billion to ~14.9 billion) and paying a small, steadily rising dividend on top. Buffett adores this arithmetic: every share retired lifts his ownership of the whole without his lifting a finger, and — done at sensible prices over many years — it is the purest form of per-share value creation. This is exactly the "one-dollar test" passed with distinction: for years, every dollar Apple retained or spent on its own shares created well over a dollar of value.
What to make of the great man's sale? Not that the business soured — he called it wonderful in the same breath — but that price and prudence matter even for a favourite. Buffett took a legendary profit off the table when the tax was cheap and the position had swollen to a quarter of Berkshire's stock portfolio. It is the clearest possible lesson from the master himself: you can love a business and still decide that this price, this size, this moment is a fine time to take some chips off the table. I would hold that thought through the valuation that follows.
Sourced from your endpoints · FY ends late Sep · linked to the data pages
| Metric | Value | Read |
|---|---|---|
| Revenue growth (recent) | ~mid-single digit | ◆ mature |
| Net income (FY2016 → FY2025) | $45.7B → $112.0B | ▲ ~2.4× · most-ever |
| Gross margin | ~48% | ▲ up from ~39% (Services) |
| Operating margin | ~32% | ▲ superb for hardware |
| Return on invested capital | ~50% | ▲ extraordinary |
| Return on equity (ROE) | ~147% | ◆ flattered by buybacks |
| Free cash flow / yield | ~$110B+ · ~3% | ▲ gushes · but low yield |
| Net debt / EBITDA | ~0.3x | ▲ fortress · near net-cash |
| Altman-Z / Piotroski | 12.0 / 9 | ▲ pristine |
| Buyback (shares, 10yr) | −~32% | ▲ largest ever |
| Capex / revenue | ~2.4% | ▲ wonderfully asset-light |
Financially, there is almost nothing to criticise and much to marvel at. Apple earns a ~50% return on invested capital — meaning every dollar it puts to work throws off fifty cents a year — on a fortress balance sheet with essentially no net debt, an Altman-Z score of twelve and a perfect Piotroski nine. It converts its enormous profit almost entirely into cash (capex is a trifling ~2.4% of revenue), and hands that cash back through the greatest buyback ever run. The only number that gives an owner pause is the one that isn't on this page but on the next: a free-cash-flow yield of just ~3%. A magnificent engine — bought, today, at a magnificent price.
The lenses converge — on 'expensive' · DCF vs. the Street · margin of safety
| Yardstick | Today | Its own history | Read |
|---|---|---|---|
| P/E — reported earnings (TTM) | ~35x | ~15-20x pre-2020 | richly re-rated |
| Price / free cash flow | ~34x | — | ≈ P/E (capex tiny) |
| Free cash flow yield | ~3% | 5-7% | thin for the growth |
| PEG (P/E ÷ growth) | >2 | — | paying up for quality |
| EV / EBITDA | ~27x | — | full |
| Dividend yield | ~0.4% | — | buyback, not income |
Like Coca-Cola, Apple reinvests so little that reported earnings, owner earnings and free cash flow all land in the same place — what you see is what you get. The trouble is what you get: all three lenses agree the price is about thirty-four to thirty-five times, for a business the market itself expects to grow earnings at perhaps high-single digits. A business that spent most of its life at fifteen-to-twenty times earnings now trades at thirty-five. That re-rating — not the (excellent) operating performance — is what has driven the stock, and it is a spring that can uncoil. The tell is in the two appraisals below: a conservative discounted-cash-flow model, unimpressed by the growth, lands near $153 — roughly half the price — while the analyst crowd, trusting the ecosystem and the buyback, sits at ~$327. Today's price rests above the model and just below the Street. There is no visible margin of safety here.
China · regulation · the App Store toll · AI — with sources
Apple's business risks are real even if its balance sheet is bulletproof. China is a double exposure — nearly a fifth of sales and the heart of its manufacturing — leaving it hostage to geopolitics on both ends. Regulation is closing in on the lucrative Services toll: Europe's Digital Markets Act and a US antitrust case both take aim at the App Store's ~30% cut, and a court could strip away the ~$20 billion a year Google pays Apple to be the default search engine — nearly pure profit that would simply vanish. Add the AI lag and a mature iPhone, and the picture is of a magnificent franchise facing, for once, several real headwinds at once. None threatens its survival. But together they are why paying ~35× earnings — the last pill, and the one most in the buyer's control — leaves no room for anything to go wrong.
Of all the companies we have examined together, this is the one I have praised most warmly in my life and, in the same season, sold most heavily — and I owe you an honest account of why a person can do both without contradiction.
Let me start where my admiration is total. Apple is a wonderful business — very possibly the best consumer franchise in the world. I never bought it as a technology company; I bought it as I bought Coca-Cola, because people love the product and would sooner change banks than change phones. That devotion gives Apple pricing power a luxury house would envy, and the ecosystem around the iPhone — the Watch, the AirPods, the photos and messages that all only work together — is a switching cost paid in daily friction, which is why nine in ten owners come back for the next one. On top of that fortress of two billion devices, Apple has built a Services toll booth earning seventy-cent margins and growing at double digits. And it is run by Tim Cook, one of the finest operators and capital allocators I have ever watched, who has returned cash to owners on a scale no company in history has matched — buying back nearly a third of the entire company in a decade. On the business, I have no quarrel. It is magnificent.
So why did I sell two-thirds of it? Because I have learned, slowly and expensively over a long life, that a wonderful business and a wonderful investment are not the same thing — the bridge between them is price. When I began buying Apple it changed hands near thirteen or fourteen times earnings; today it fetches about thirty-five, for a business the world expects to grow its profits at perhaps a high-single-digit pace. A conservative reckoning of its cash flows comes out near half the current quote; the enthusiasts sit just above it. That is not the arithmetic of a bargain — it is the arithmetic of a great company priced for a perfection it may or may not deliver, at a moment when China, the regulators circling its App Store toll, and an AI race it does not lead all press at once. When my favourite holding had swollen to a quarter of our stock portfolio and the tax on a gain like that was as low as it may ever be, prudence did the rest. I took a legendary profit off the table. I did not sell because the business was bad. I sold because the price was full and the position was large — two entirely rational reasons that have nothing to do with the quality of the franchise.
What, then, is the counsel for you? First, if you already own Apple and bought it well, I would be in no hurry to leave — this is a business to hold for a very long time, and its buyback quietly makes your slice larger every year. But I would not chase it here, and I would certainly not confuse its greatness with a green light at any price. The margin of safety a careful buyer requires simply is not on offer at thirty-five times earnings; the last decade's return came as much from the multiple expanding as from the business growing, and multiples that expand can also contract. My patience would wait for a genuine fright — a bad quarter, a China scare, a market swoon — to drag the price back toward the low two-hundreds, where it last traded this past year and where the cash yield finally rewards the owner rather than the seller.
So: a wonderful business, held with admiration; a demanding price, approached with discipline. Own it if you have it. Add to it when the crowd is frightened, not when it is euphoric. And remember the lesson the old teacher just taught you with his own chips: you can adore a company and still know exactly what it is worth — and refuse, politely, to pay a penny more.