Mark Zuckerberg may be right about Apple's lack of innovation. But here's why that shouldn't matter to investors.

Apple may not be the exciting growth stock it was years ago, but could the key to its long-term success depend on its services business?

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Meta Platforms' CEO Mark Zuckerberg isn't a big fan of Apple (NASDAQ: AAPL). In a recent interview with podcast host Joe Rogan, he was critical of the company and its lack of innovation over the years.

And Zuckerberg really isn't necessarily wrong. Apple has been relying on making minor improvements to its iPhones and iPads over the years, and there hasn't been a major innovation from the company in a long time.

Apple definitely feels like a different company under CEO Tim Cook than it did under the late Steve Jobs. But Cook hasn't failed by any means. The business is worth well over $3 trillion today, and it could be on track to be the first company to hit a $4 trillion valuation. However, it hasn't come without challenges.

Apple has struggled to innovate in recent years

Apple hasn't been coming out with new life-changing inventions like the iPhone, but that's because those aren't easy ideas to come up with and bring to market. Investing heavily into research and development to come out with the next big tech product can be an incredibly costly endeavour, and the risk is that it may not even pay off.

Last year, Apple abandoned plans to make an electric car, a project that it had been working on for a decade.

There are also reports the company has recently stopped producing its Vision Pro headsets due to a lack of demand. It hasn't given up on making mixed-reality headsets, but it is rumoured to be working on lower-priced options (the Vision Pro starts at $3,499) that may appeal to a wider consumer base.

The lack of innovative success might be a concern for a regular company trying to grow its sales and profits, but that isn't the case for Apple.

The tech giant already has a massive customer base, and there are 2.2 billion active Apple devices in the world. Innovating new products would be a huge bonus, but it may not be necessary for the business to grow in value.

Building out its service business may be the better long-term strategy

Apple's high-priced iPhones and iPads could make it difficult for consumers to justify upgrading their devices on a yearly basis or even after a couple of years. Users may not see a reason to make a big expenditure for seemingly modest improvements like enhanced cameras, better battery life, and other nominal changes it makes to its phones every year.

And that's why the key to the company's long-term growth may ultimately depend on how well it can grow its services business.

In the company's most recent fiscal year, which ended on 28 September, 2024, product revenue actually declined by just over 1%. While it was still massive at nearly $295 billion and it accounted for three-quarters of its overall revenue, the reason the business generated positive growth during the year was due to services.

Services revenue came in above $96 billion for the fiscal year and rose by 13%. For Apple, there's a lot more potential here to expand its offerings in the long run. It will likely be easier to convince someone to spend $20 per month for new artificial intelligence (AI) capabilities on phones or other applications rather than buying a whole new phone.

In the case of AI, an upgrade may be necessary to use the latest technologies, but it can still be a more sustainable growth strategy to focus more heavily on services. This can help the company increase its margins in the process rather than innovating new products.

Is Apple still a good long-term buy?

Apple may not be the exciting growth stock it was years ago, but the business is more stable and consistent these days. The company isn't rushing out to launch the newest AI features on its phones. Instead, it's taking a slower, measured approach to be more selective in where it invests its resources to get the best bang for its buck.

Although it's a high-priced stock and its market cap is massive at $3.5 trillion, if you're looking for an investment to hang on to for years and potentially decades, Apple looks like a solid option.

With a vast user base to tap into and huge profits and free cash flow every year, this is a company that isn't likely to run out of ways to grow in the long term. Its valuation could mean limited returns in the short term, but if you're a buy-and-hold investor, it's hard to go wrong with Apple's stock.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Apple and Meta Platforms. The Motley Fool Australia has recommended Apple and Meta Platforms. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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