Apple No Longer a Hardware-Focused Business: Bulls

Apple Inc. (AAPL) is on track to become the first U.S. company to reach the trillion-dollar mark, and it can thank its new focus on software and services for a great deal of that growth, according to one bull on the Street. (See also: Apple to Hit $214 on Services: Morgan Stanley.)

On the back of the Worldwide Developers Conference 2018 (WWDC) held this week in San Jose, California, GBH Insights' Dan Ives spoke in an interview with Bloomberg regarding Apple's transition from relying primarily on its legacy hardware business and its prospects in new growth markets. He sees software and services generating $50 billion in revenue by 2020, indicating that it will serve as the "second growth stool for Apple," and noting that it is currently the fastest growing segment in the company. 

While GBH Insights is upbeat on three new smartphones slated to be released by Apple in the next three to six months, Ives indicated that "in a more mature smartphone product cycle ... software will be the big focus moving forward."

Jousting With Microsoft, Amazon, Alphabet

Ives noted that tech giants are in competition to win over the developer community, underscoring IT behemoth Microsoft Corp.'s (MSFT) $7.5 billion acquisition of code sharing and developer collaboration service GitHub this week. The chief strategy officer noted that Apple announced a slew of things at the WWDC, including enhancements to its artificial intelligence (AI) driven virtual assistant Siri and its augmented reality (AR) products. 

What investors should be focusing on the most in terms of development for value added, according to Ives, is how well it brings on developers for Siri, which has largely disappointed. Amazon.com Inc. (AMZN) is miles ahead of competition in AI-development, with its Alexa-powered Echo hardware products and its leadership in the $20 billion smart speaker market. "It all feeds into Apple's HomePod," said Ives, suggesting that a lot rests on Apple's ability to gain favor among developers and win market share against Amazon and Alphabet Inc. (GOOGL) in the burgeoning smart speaker market. 

Earlier this year, the Cupertino, California-based tech giant saw its shares break all-time highs on news that legendary investor and philanthropist Warren Buffett had purchased another 75 million shares in the first quarter, making it Berkshire Hathaway Inc.'s (BRK.A) top equity holding.

Trading up 1% on Tuesday morning at $193.75, AAPL reflects a 14.5% gain year-to-date (YTD) and a 25.9% return over 12 months, compared to the S&P 500's 2.9% increase and 12.9% gain over the same respective periods. (See also: Microsoft Bought Github for $7.5 Billion, Embracing Open Source.)