Last week, New Street Research’s Pierre Ferragu downgraded Apple (NASDAQ:AAPL) to ‘sell’ based on the iPhone X being too successful. The point is well taken, though unpopular among AAPL shareholders. Basically, Ferragu argues that the iPhone X has sold so well since its launch in November of last year, there’s little room for sales growth from the next iterations of the device. He understandably fears that AAPL stock is pricing in a whiz-bang holiday season that simply isn’t in the cards.

And, maybe he’s right.

Still, it would have been nice to also hear Ferragu’s thoughts on Apple’s fast-growing Services arm. While it’s still only a small part of the consumer-tech giant’s total revenue, it’s driving the bulk of its revenue growth. Slowly but surely Apple’s success is depending less and less on the number of iPhones it sells every quarter. More and more AAPL is driven by the number of people with an iOS device in their hand… people that spend money every month to get more out of their device.

In that light, whispers that a lower-end version of the iPhone X is set to be unveiled next month only underscores the potential of the shifting business model.

It’s All About the ARPU From Here

Ferragu’s bottom line regarding his downgrade of AAPL was:

“The iPhone X has been very successful and well received by consumers. It has been so successful, that we think it has brought forward demand.”

His premise has some supporting evidence. Namely, iPhone sales peaked in 2015 when the world went hog-wild over the iPhone 6. While some quarters since then have seen higher unit sales on a year-over-year basis, on a full-year basis, the company has yet to reclaim that year’s total sales of 231.3 million units. Not even the iPhone X — which consumers love — has performed as well.

It’s conceivable, though not likely, that a rumored launch of three different versions of the iPhone X later this year could rekindle unit sales growth. But anybody who wanted a new iPhone probably has one… either the iPhone 8, or the X. Differentiation between this year’s and last year’s devices is likely to be limited.

It may not matter, however.

The cultivation of Apple’s Services arm, capitalizing on everything ranging from apps to digital to music to cloud storage, has been well documented. What’s not been explained well enough, however, is just how well this business model could offset whatever Apple can no longer achieve on the iPhone sales front.

Although he’s only guessing, Loup Ventures analyst Gene Munster — a long-time follower of AAPL when he was with Piper Jaffray — believes Apple Services’ average revenue per user for this year will roll in at $34.76, up 15% from last year’s $30.16 per user.

That doesn’t exactly fill the gap between last quarter’s average iPhone selling price of $724.12 versus the $796.42 figure from a quarter earlier when the most expensive iPhone X was firing on all cylinders. But, if Munster is right about where Apple’s Services arm is headed, the average iOS user could be forking over $54.58 per year to the company for various digital services.

In the meantime, lower-end iPhones will help get the company’s devices in more revenue-bearing consumers’ hands than limiting the devices to just the swath of consumers able to pay a premium price.

Suddenly, it makes perfect sense that Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is willing to let manufacturers freely use Google’s Android operating system. Operating systems on their own aren’t the opportunity. Getting an operating system into consumers’ hands and then monetizing those device owners in a myriad of other ways is the business model of the future.

Bottom Line for AAPL Stock

Ferragu still has a valid point. As rapidly as Apple’s services business is growing, it’s still accounts for only about one-fifth of the company’s total revenue. In comparison, the iPhone still drives about three-fourths of Apple’s top line. The transition between less reliance on the latter and more reliance on the former could be a long and bumpy one. AAPL is priced as if it won’t be.

Regardless, it would be short-sighted to ignore the paradigm shift that’s underway. iPhone sales may be at peak capacity, and even topping out. There are an estimated 1.3 billion iOS devices in active use though, and more are about to be added with a more affordable version of the iPhone X. There’s a whole lot of ways for Apple to monetize those.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.