Apple's iPhone sales are plateauing. But the real story is how the company is pivoting to services and subscription revenue. Here's what investors need to know.

Let's be honest - iPhone unit sales have been flat for years. The smartphone market is saturated, replacement cycles are lengthening, and consumers aren't upgrading as frequently. But if you're looking at Apple and only seeing iPhone weakness, you're missing the bigger picture.

Services revenue is now over $20 billion per quarter and growing at a double-digit clip. That includes App Store fees, iCloud subscriptions, Apple Music, Apple TV+, Apple Fitness+, and a growing list of other recurring revenue streams. This is the future of Apple's business model.

Here's why this matters: Services revenue has margins around 70%, compared to hardware margins in the mid-30% range. As services become a larger portion of the business, Apple's overall profitability should improve even if hardware sales stagnate.

The installed base keeps growing. Even if people aren't buying new iPhones every year, the total number of active Apple devices worldwide keeps climbing. That's a larger addressable market for services. With over 2 billion active devices globally, Apple has built a massive platform for monetization.

China remains a concern. Revenue from Greater China has been volatile, and geopolitical tensions could impact future growth. But Apple has been diversifying geographically and building stronger relationships in India and other emerging markets.

Valuation is always the question with Apple. At current levels, the stock trades around 28x forward earnings. That's not cheap, but it's not absurd either for a company with this level of cash generation and brand strength. The dividend yield is modest but growing, and the buyback program continues to reduce share count.

My view: Apple is transitioning from a hardware company to a services and ecosystem company. That transition takes time, and there will be bumps along the way. But the fundamentals remain strong. If you're holding Apple, continue holding. If you're looking to add, consider averaging in over time rather than buying all at once.

The key metric to watch going forward is services revenue growth rate. As long as that stays above 10% annually and the installed base keeps expanding, Apple should be able to maintain its premium valuation.