The financial landscape of 2023 was ruled by the “Magnificent Seven,” shaping the majority of the S&P 500’s overall returns during that time. However, as the curtains opened on 2024, this elite group has now shrunk to the Fab Five. Among them, Nvidia, Microsoft, Alphabet, Amazon, and Meta Platforms continue to soar over the market indexes, leaving two outliers trailing behind.

Apple shares have seen a modest 15% growth this year, a step slower than the S&P 500’s 16% year-to-date performance. At one point, these shares faced a decline of over 10% in the same period. Similarly, Tesla stocks, despite a recent uptick, still find themselves in negative territory with a 1% downtrend since the year began.

What lies ahead for these market giants? Will they regain their lost momentum or continue their lag behind the broader market trends?

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The AI Evolution of Apple

While artificial intelligence fueled the growth of most of the Magnificent Seven in the previous year, Apple had been a latecomer to the AI scene. However, that changed recently as the tech behemoth unveiled its new “Apple Intelligence” features during the annual Worldwide Developers Conference (WWDC) in early June. These new functionalities boast writing assistance, AI-powered image manipulation, an upgraded Siri, and the integration of third-party large language models like OpenAI’s ChatGPT into iOS applications.

These AI innovations could serve as twin triggers for Apple’s growth. In the short run, an upswing in device upgrades may unfold, driven by Apple Intelligence, which will exclusively grace the iPhone 15 Pro, iPhone 15 Pro Max, and the upcoming iPhone 16 series. This surge in software capabilities might motivate existing iPhone users to hasten their device upgrades.

With the stock price rallying post-announcement, market expectations for a robust upgrade cycle may already be factored in. Nevertheless, a potential for surpassing these expectations looms large when the new iPhones hit the shelves in September.

In the long run, Apple has laid a strong foundation for running AI applications on its flagship iPhones. This move could spur a proliferation of AI-driven apps and elevate the demand for its Private Cloud Compute system, thereby amplifying its services revenue. However, this boost to revenue streams is unlikely to materialize in the immediate future.

Apple shares are presently trading at approximately 29.8 times forward earnings. While this valuation edges above the broader S&P 500, it stands at the lower end compared to its Magnificent Seven peers. Apple’s robust cash flows, substantial cash reserves, and significant share buybacks justify a premium valuation. The trajectory of its earnings per share (EPS), especially if galvanized by Apple Intelligence, could drive a sturdy growth narrative over the forthcoming year and beyond.

Despite a sluggish start in 2024, Apple emerges as a compelling buy proposition at this juncture.

Tesla’s Road to Reinvention

The road for Tesla investors has been marred with challenges in the year’s initial half, with intensifying competition and macroeconomic headwinds clouding Tesla’s way forward.

Pricing pressures have constituted Tesla’s chief ordeal this year. Faced with soaring interest rates and the emergence of lower-priced competitors, the electric car giant resorted to slashing prices to expedite sales. This strategy, however, weighed heavily on both revenue and profits. Notably, the first quarter witnessed Tesla’s weakest sales since 2022, plummeting by 8.5% year-over-year, accompanied by a stark 55% profit decline.

The second quarter brought about a semblance of recovery for Tesla. With sales reaching 444,000 vehicles—an approximate 5% drop from the prior year—the electric carmaker surpassed analyst predictions. Moreover, the production figure of 411,000 units indicates improved inventory management and healthier free cash flows. Nevertheless, the receding sales could potentially translate to another profit dip when Tesla unveils its second-quarter financial results.

Attempting to recalibrate its trajectory, Tesla aims to fast-track the launch of new affordable vehicle models next year. This maneuver could catalyze sales volumes and fortify profit margins, although its implications for the current year remain limited.

Tesla anticipates a pivotal moment in August with the unveiling of its robotaxi ambitions. CEO Elon Musk has long promised a fleet of fully autonomous vehicles and a trailblazing roster of robotaxis under Tesla’s banner. Yet, progress in this domain has trailed behind initial pledges, with several competitors establishing a significant lead in the robotaxi arena.

Trading around 93 times forward earnings, Tesla’s valuation is leagues apart from traditional automakers—a realm where it operates. With expectations riding high on robust delivery growth coinciding with the rollout of budget-friendly vehicles, justifying this premium remains a daunting task. The looming event to showcase Tesla’s robotaxi endeavors could potentially sway investor sentiment. Nevertheless, at its current valuation, Tesla stands as a daring gamble rather than a prudent investment.

Is Apple a Better Bet than Tesla?