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

The S&P 500 (SNPINDEX: ^GSPC) has more than recovered its losses from earlier this year and is now up nearly 4.4% year to date.

Many mega-cap tech-focused companies have posted sizable gains -- including "Magnificent Seven" members Meta Platforms (NASDAQ: META), Microsoft (NASDAQ: MSFT), and Nvidia (NASDAQ: NVDA). But investors may be souring on Tesla (NASDAQ: TSLA), Apple (NASDAQ: AAPL), and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) due, in part, to their apparent lack of artificial intelligence (AI) achievements.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

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

Image source: Getty Images.

Unproven 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.

Data by YCharts.

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 deliveries. Tesla stock popped after its robotaxi event showcased progress on self-driving cars. Some investors have been waiting nearly a decade for this update, so it's understandable that the stock reacted favorably to the event.

Given the weak results in Tesla's core business, 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 business is selling tech-focused consumer products and services. Apple hasn't made meaningful AI improvements to its product suite, but it has released a slew of new tools and a software interface update 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 share. Apple has grown increasingly dependent on sales outside the U.S., but has been losing market share in key markets like China due to intense competition from companies like Xiaomi, Huawei, and Vivo. Like 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 tech-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 (NASDAQ: AMZN) Web Services and Microsoft Azure. Alphabet-owned YouTube can also benefit from AI, as it helps creators produce content and streamline suggested videos and advertisements better targeted to individual users. Google's self-driving car project, Waymo, could also benefit from AI.

Alphabet-owned generative AI model Gemini is a multimodal tool -- meaning it can work with text, audio, visuals, video, 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 about how AI could affect Alphabet's cash cow, Google Search.

Integrating Gemini with Google Search, or simply changing Google Search 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 Search is facing its biggest challenge in decades from competitors' AI-powered search 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 business and return capital to shareholders 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 product launch this September could be just what the company needs to prove 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 Search. So far, Google Search 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 about Alphabet, especially with potential upside from Gemini and Waymo.

Beaten-down Magnificent Seven stocks to buy now

The beauty about 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 proven 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 profiles 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 markets you believe will thrive over the long term.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $402,034!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $38,158!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $704,676!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, available when you join Stock Advisor, and there may not be another chance like this anytime soon.

See the 3 stocks »

*Stock Advisor returns as of June 23, 2025

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 following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.