Why Are Tesla, Apple, and Alphabet Underperforming the "Magnificent Seven" and the S&P 500?
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Why Are Tesla, Apple, and Alphabet Underperforming the "Magnificent Seven" and the S&P 500?

June 28, 2025
06:15 AM
6 min read
AI Enhanced
investmentstockstechnologyartificial intelligencemarket cyclesseasonal analysismarket

Key Takeaways

The S&P 500 (^GSPC 0. 52%) has more than recovered its losses from earlier this year and is now up nearly 4. 4% year to date. Many mega-cap -focused companies...

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investment

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June 28, 2025

06:15 AM

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investmentstockstechnologyartificial intelligencemarket cyclesseasonal analysismarket

The S&P 500 (^GSPC 0. 52%) has more than recovered its losses from earlier this year and is now up nearly 4. 4% year to date

Many mega-cap -focused companies have posted sizable gains -- including "Magnificent Seven" members Meta Platforms (META 1. 04%), Microsoft (MSFT -0. 28%), and Nvidia (NVDA 1

But investors may be souring on Tesla (TSLA -0. 67%), Apple (AAPL 0. 04%), and Alphabet (GOOG 2. 30%) (GOOGL 2. 70%) due, in part, to their apparent lack of artificial intelligence (AI) achievements

Here's what's going wrong for these growth stocks, and whether they are buys now

Image source: Getty Images

Unven AI plays A great divide has appeared through the Magnificent Seven between companies whose investment theses have been enhanced by AI and those whose theses have not

Perhaps the simplest reason why Tesla, Apple, and Alphabet are underperforming their Magnificent Seven peers is that they are on the unfavorable side of this great divide

Just a couple of months ago, Tesla was down around 45% in 2025

It has recovered a substantial amount of those losses despite plummeting vehicle deries

Tesla stock popped after its robotaxi event showcased gress on self-driving cars

Some investors have been waiting nearly a decade for this, so it's understandable that the stock reacted favorably to the event

Given the weak results in Tesla's core, Tesla's investment thesis increasingly relies on longer-term bets on self-driving cars and robotics

Tesla could benefit from AI one day, but it isn't monetizing it to a significant extent right now

Apple is in a similar boat

Its core is selling -focused consumer ducts and services

Apple hasn't made meaningful AI imvements to its duct suite, but it has released a slew of new tools and a software interface that tout AI capabilities

However, it remains to be seen if Apple will be a net beneficiary of AI

AI presents arguably the best opportunity in decades for competition to tap into Apple's dominant smartphone market

Apple has grown increasingly dependent on sales outside the U. , but has been losing market in key China due to intense competition from companies Xiaomi, Huawei, and Vivo

Tesla, Apple could benefit from AI in the near future

But so far, AI simply hasn't been a catalyst for the company in the same way it has for other mega-cap -focused companies

Alphabet is much more of a mixed bag

AI growth is a boon for cloud computing, and Google Cloud is the No. 3 player in the space behind Amazon (AMZN 2. 66%) Web Services and Microsoft Azure

Alphabet-owned YouTube can also benefit from AI, as it helps creators duce content and line suggested s and advertisements better targeted to individual users

Google's self-driving car ject, Waymo, could also benefit from AI

Alphabet-owned generative AI model Gemini is a multimodal tool -- meaning it can work with text, audio, visuals, and even code

Gemini got off to a rocky start, but now it's a major player in the chatbot space, along with OpenAI's ChatGPT, Anthropic's Claude, and other generative AI companies

However, the elephant in the room is uncertainty how AI could affect Alphabet's cash cow, Google

Integrating Gemini with Google, or simply changing Google from a web page ranking tool to an interactive information powerhouse, could be a simple and effective way for Alphabet to hold its own despite mounting competition

But there's no denying that Google is facing its biggest challenge in decades from competitors' AI-powered offerings

That uncertainty alone, despite all the other ways Alphabet benefits from AI, has led some investors to avoid and/or dump the stock

The sell-off in Apple and Alphabet is overblown Buying Tesla, Apple, or Alphabet is a belief that these companies will be able to adapt in the age of AI -- even if they don't benefit drastically from it

Tesla is arguably the highest-risk name given its lofty valuation (it has the highest price-to-earnings (P/E) ratio and highest forward P/E ratio of the Magnificent Seven)

But Apple and Alphabet both have more reasonable valuations (31. 2 P/E for Apple and just 18. 6 for Alphabet)

These companies also generate a ton of free cash flow and earnings that they can use to reinvest in the and return capital to holders through buybacks and dividends

Additionally, Apple and Alphabet have substantially more cash, cash equivalents, and marketable securities on their balance sheets than long-term debt

Apple's big duct launch this September could be just what the company needs to ve that it has the hardware and software to attract Wall Street's attention

Alphabet investors should continue to monitor the performance of the company's services segment, which is led by Google

So far, Google ad revenue has been incredibly strong despite increased adoption of ChatGPT and other competition

Until that trend shifts, it's hard to get too pessimistic Alphabet, especially with potential upside from Gemini and Waymo

Beaten-down Magnificent Seven stocks to buy now The beauty being an individual investor is that you don't have to agree with Wall Street sentiment and can take advantage of when great companies go on sale

Short-term-minded investors may pass on Tesla, Apple, and Alphabet simply because they aren't ven AI plays, but all three stocks could still be worth buying and holding for long-term investors

At this juncture, Apple and Alphabet present far more compelling risk and potential reward files than Tesla -- especially Alphabet, given its dirt-cheap valuation

So Alphabet would be my top pick of these three underperformers, with Apple as a close second

However, the best buy ultimately depends on your personal risk tolerance and the end you believe will thrive over the long term

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors

Daniel Foelber has positions in Nvidia

The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla

The Motley Fool recommends Xiaomi and recommends the ing options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft

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