In recent years, Apple has experienced a decline in iPhone sales, with the latest quarterly report showing a further 10% drop. However, the tech giant's services business has emerged as a bright spot, contributing to continued profit margin growth. The Services segment, which encompasses the App Store, Apple Pay, Apple TV+, and Apple Music, reported a remarkable revenue growth of 14% in the company's second quarter.

The positive reception of Apple's quarterly report can be attributed, in part, to the strong performance of its services business. CFO Luca Maestri noted that revenue gains, coupled with cost-cutting measures, contributed to boosting the company's gross margins to 46.6% - the highest in 12 years, up from 45.9% in the previous quarter.

Apple's strategic focus on efficiency has been evident over the years, with the company consistently working towards improving its margin profile. This approach contrasts with the big investments made by its industry peers in the artificial intelligence (AI) sector. During the earnings call, CEO Tim Cook refrained from disclosing specific spending plans related to AI. However, analysts from Evercore noted that Apple is executing AI initiatives in a more capital-efficient manner compared to other tech companies, a fact that investors should appreciate.

Apple's AI strategy aligns with its longstanding philosophy of meticulously entering product categories, rather than rushing into them. With a track record of success in categories such as computers, MP3 players, phones, tablets, headphones, and VR headsets, Apple has proven its ability to be a thoughtful late adopter, unfazed by industry trends.

While its competitors are investing heavily in AI, Apple's services business capitalizes on its strong brand and walled-garden ecosystem. It is expected that Apple's upcoming AI strategy will leverage this approach, continuing to drive the company's margin growth and setting it apart from its peers.

As Apple continues to build its infrastructure for the impending AI wave, its services business is proving to be a valuable asset. Despite the decline in iPhone sales, the company's pivot towards services has contributed to its sustained profitability and margin expansion. Investors are optimistic about Apple's capital-efficient approach to AI, which positions the company to thrive in an increasingly competitive tech landscape.

Ethan Wolff-Mann, a Senior Editor at Yahoo Finance, oversees newsletters and contributes valuable insight on Apple and its market performance.