Shares of Apple (AAPL Free Report) rallied to a new 52-week high of $217.95 on Aug 17, eventually closing a tad lower at $217.58.

This Zacks Rank #2 (Buy) stock, which has a market cap of $1.07 trillion, has seen its shares rally more than 14.7% since it reported impressive quarterly financial results at the end of July.  

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Apple’s fortunes are tied to its most important offering, iPhone, since the smartphone is by far its biggest revenue driver. Moreover, 41.3 million units of iPhones were sold in third-quarter fiscal 2018. Sales benefited from higher average selling price (ASP) and customer loyalty.

Although Apple sold only a few hundred more iPhones than it did a year ago, segment revenues were 20% higher. This was attributable to a 19.5% boost in average selling price of an iPhone to $724 during the quarter.

However, it’s the Services segment that has, over the last few years, become one of the biggest revenue generators for Apple. Revenues from this segment surged 31% year over year in the last reported quarter.

Services Momentum to Continue

The iPhone maker is actively employing its resources to boost the Services segment, which includes AppleCare, Apple Music, Apple Pay among others. It has emerged as the company’s new cash cow.

Apple Music is one of the biggest new growth areas in Services and is already challenging streaming music giant Spotify (SPOT Free Report) in the U.S. market. Meanwhile, Apple Pay was used for more than 1 billion transactions, in the last reported quarter, which is triple the amount in the year-ago quarter, surpassing total transactions of Square.

Moreover, increasing adoption of Apple Watch is noteworthy, which is evident from third-quarter fiscal 2018 results, wherein revenues grew in the mid 40% range.

Notably, Apple is on track to double Services revenues of $24 billion in fiscal 2016 by 2020.

Further Diversification

Apple is diversifying further from its services business to cash in on the growing demand for the video streaming segment.

The company is investing heavily in developing original content and plans to roll out its own streaming service in 2019 to compete in the growing online streaming market that has so far been dominated by Netflix (NFLX Free Report) , Amazon and Hulu.

We believe that such ventures are strengthening Apple’s ecosystem considerably and are expected to drive top-line growth going forward.

Positive Estimate Revisions

Over the last 30 days, the Zacks Consensus Estimate for fourth-quarter fiscal 2018 increased 15 cents to $2.75, indicating year-over-year growth of 32.9%. The Zacks Consensus Estimate for revenues is currently pegged at $60.98 billion, implying 16% year-over-year growth.

The Zacks Consensus Estimate for fiscal 2018 increased 28 cents to $11.68 over the same time period, indicating year-over-year growth of 26.8%. The Zacks Consensus Estimate for revenues is currently pegged at $263.68 billion, up 15% year-over-year.

Moreover, the company beat the Zacks Consensus Estimate for earnings in the trailing four quarters, delivering an average positive surprise of 5.46%.

Key Pick

Another top-ranked stock in the broader technology sector is Microsoft (MSFT Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

The long-term earnings growth rate for Microsoft is 12.32%.

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