Two titans of the “Magnificent Seven”, Apple (NASDAQ: AAPL) and Tesla (NASDAQ: TSLA), have faced noticeable headwinds. They’ve risen as the worst-performing stocks in this elite group, with year-to-date losses of 19% and 15%, respectively. Despite their similar struggles, Wall Street analysts present really different outlooks, and these observations largely favour Apple for a rebound while expecting further declines for Tesla. My analysis dives into these clashing signals and goes through the underlying reasons and key opportunities for each company.

Wall Street’s Divided Forecast

Current analyst reviews spread the suggestion of acquiring Apple shares and divesting from Tesla. From 50 analysts covering Apple, the median target price is $235 per share meaning a whole 16% upside from its current price of $202. It was the other way around for Tesla. 55 analysts forecast a median target price of $307 per share, indicating a potential 10% downside from its current price of $343. These forecasts tell us about a major difference in investor sentiment and sensed future performance.

Apple Stock: Strengths Under Pressure

Apple has very carefully prepared firm pillars and sizable pricing power. Underpinned by its expertise in combining hardware and software to deliver a unique user experience. The company maintained its position as the smartphone sales leader in the first quarter, with the average iPhone selling 2.5 times more than the average Samsung device (according to Counterpoint Research). Apple also benefits from sturdy service revenue coming from offerings like iCloud, App Store fees and Apple Pay.

However, Apple faces considerable headwinds that threaten to obstruct its earnings growth in the short to medium term:

  • Antitrust Lawsuit: A pending antitrust lawsuit could jeopardize Alphabet’s plentiful annual payments (north of $20 billion) to Apple for making Google the default search engine in Safari. A prohibition of this practice would result in a huge loss of high-margin service revenue.
  • Tariffs and Production Shifts: Apple’s strategic move to shift iPhone production to India to circumvent high tariffs on Chinese imports has drawn criticism with threats of a 25% tariff on iPhones made elsewhere. Even without such an escalation, the baseline 10% tariff on imports from foreign countries will continue to impact Apple’s profitability.
  • AI Integration: Despite the introduction of “Apple Intelligence,” its suite of generative AI capabilities for newer iPhones has yet to impress consumers. Analysts like Gene Munster of Deepwater Asset Management believe Apple will need substantial investments in AI infrastructure to train its own large language models and improve the platform.

Wall Street anticipates Apple’s earnings to grow at a modest 6% annually through fiscal 2026. This projection, along with its current valuation of 28 times earnings, leads some to believe the stock is overvalued, potentially facing further pressure from ongoing legal battles, tariffs and AI infrastructure investments.

Tesla Stock: Disruptive Potential Amidst Challenges

Tesla has experienced recent setbacks in its electric vehicle (EV) market share, losing nearly 10 percentage points in Europe and the U.S. and over 3 points in China during the first quarter. Analysts attribute these declines to factory updates that limited Model Y production and CEO Elon Musk’s increased involvement in politics. However, these issues are largely considered temporary, suggesting a potential recovery in EV sales in the coming quarters.

Despite these immediate challenges, Tesla’s long-term investment thesis hinges on its more ambitious and potentially transformative opportunities in autonomous driving and robotics:

  • Autonomous Driving (Robotaxi): Tesla is poised to launch its first autonomous ride-sharing (robotaxi) service in Austin, entering what Uber perceives as a $1 trillion market. Tesla’s approach, relying solely on cameras for its Full Self-Driving (FSD) platform, offers a potentially cost-effective advantage over competitors like Waymo, which utilize a more expensive combination of cameras, lidar, and radar. Musk has expressed an audacious vision for Tesla to eventually capture “99% market share or something ridiculous” in this space.
  • Humanoid Robots (Optimus): Tesla is actively developing Optimus, an autonomous humanoid robot, leveraging its expertise in artificial intelligence. The company aims to deploy thousands of these robots in its factories this year to enhance operational efficiency. More significantly, Tesla intends to begin selling Optimus models to other companies as early as late 2026, with Musk envisioning this as a monumental $10 trillion market.

Wall Street forecasts Tesla’s earnings to grow at 14% annually through 2026. Although its current valuation of 153 times earnings appears “absurdly expensive,” as quoted by The Motley Fool, this consensus estimate does not fully account for the rapid acceleration in earnings growth that could materialize as the company grows into these infant yet massive markets like autonomous driving and humanoid robotics. For investors who believe Tesla will successfully execute on these significant opportunities, the current valuation (while rich) could be a reasonable entry point.

Conclusion

The stock market presents a fascinating dichotomy between Apple and Tesla. Apple, a market leader facing near-term regulatory and geopolitical headwinds while progressing cautiously in AI, is seen as a buy by Wall Street for its stability and brand power. Tesla, conversely, is viewed with skepticism due to its current valuation and recent market share shifts. Yet, it holds immense long-term potential in disruptive technologies like autonomous driving and humanoid robotics. For investors, the decision hinges on their risk tolerance and belief in each company’s ability to navigate their respective challenges and capitalize on future market opportunities.