Tesla Stock vs. Apple Stock: Wall Street Says Buy One and Sell the Other

Year to date, Apple (NASDAQ: AAPL) and Tesla (NASDAQ: TSLA) have been the two worst-performing "Magnificent Seven" stocks, notching losses of 19% and 15%, respectively. But Wall Street expects Apple shares to rebound in the coming months while Tesla shares fall even further, as detailed below:

• Among 50 analysts following Apple, the median target price is $235 per share. That implies 16% upside from the current share price of $202.
• Among 55 analysts following Tesla, the median target price is $307 per share. That implies 10% downside from the current share price of $343.

Those forecasts suggest investors should buy Apple and sell Tesla at current prices. But I would encourage readers to think carefully about that decision. Personally, I would rather own Tesla. Here's why.

Image source: Getty Images.

Apple: 16% upside implied by Wall Street's median target price

Apple has cultivated a brand moat and pricing power through engineering expertise that spans software and hardware. Its aesthetic devices run proprietary operating systems to create a somewhat unique experience for users, and certainly one consumers will pay for. Apple was the smartphone sales leader in the first quarter. And the average iPhone sold for 2.5 times more than the average Samsung, per Counterpoint Research.

However, Apple is beset by headwinds that threaten to slow earnings growth in the coming quarters. First, Alphabet currently pays Apple north of $20 billion per year to make Google the default search engine in the Safari browser. However, a pending antitrust lawsuit could prohibit that practice, in which case Apple would lose a significant amount of high-margin services revenue.

Second, Apple is currently moving iPhone production to India to avoid the high tariffs on Chinese imports. That upset President Trump, who wants those devices made in the United States. So, he threatened a 25% tariff on iPhones made elsewhere. Even if he chooses not to follow through, the 10% baseline tariff on imports from foreign countries will still be headwind to Apple's profits.

Finally, many analysts think the company will eventually monetize Apple Intelligence -- a suite of generative artificial intelligence (AI) capabilities for newer iPhones -- but consumers have so far been unimpressed. Gene Munster at Deepwater Asset Management believes Apple will improve the platform by training its own large language models, which will require significant investments in AI infrastructure.

Wall Street expects Apple's earnings to increase at 6% annually through fiscal 2026, which ends in September 2026. That makes the current valuation of 28 times earnings look quite expensive. Even worse, analysts may be overestimating future earnings. Apple could miss the mark as antitrust lawsuits, tariffs, and investments in AI infrastructure hinder its profits in the coming quarters.

Here's the bottom line: I think investors should avoid Apple stock until it either trades at a much cheaper price or else positive catalysts develop. Additionally, shareholders with a large percentage of their wealth in Apple should consider trimming their positions.

Tesla: 10% downside implied by Wall Street's median target price

In the first quarter, Tesla lost nearly 10 percentage points of market share in electric cars in Europe and the U.S., and it lost more than 3 points of market share in China. Analysts have attributed decreased demand to factory updates (which limited Model Y production) and CEO Elon Musk's involvement in politics. Those were temporary problems, so electric car sales could gain steam in the quarters ahead.

Regardless, Tesla has larger and (arguably) more important opportunities in autonomous driving and robotics. The company will launch its first autonomous ride-sharing (robotaxi) service in Austin this month, entering what Uber believes is a $1 trillion market. Meanwhile, Tesla may start selling its autonomous humanoid robot Optimus to other companies as soon as late 2026. Musk sees that as a $10 trillion market.

Wall Street expects Tesla's earnings to grow at 14% annually through 2026. That makes the current valuation of 153 time earnings look absurdly expensive, which may explain why most analysts anticipate downside in the stock. However, that consensus estimate does not account for the possible acceleration in earnings growth as the company expands into new markets.

Here's the bottom line: Tesla stock is not for everyone. Investors that don't believe the company will disrupt the mobility and labor markets with autonomous cars and robots should avoid the stock. But investors that believe Tesla will execute on those opportunities should own the stock and now is a reasonable time to buy a few shares despite the rich valuation.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Tesla. The Motley Fool has positions in and recommends Alphabet, Apple, Tesla, and Uber Technologies. The Motley Fool has a disclosure policy.