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

Core Viewpoint - The S&P 500 has rebounded and is up nearly 4.4% year to date, with mega-cap tech companies like Meta, Microsoft, and Nvidia performing well, while Tesla, Apple, and Alphabet are underperforming due to their lack of significant AI advancements [1][2]. Group 1: Performance of Mega-Cap Tech Companies - Tesla, Apple, and Alphabet are lagging behind their peers in the "Magnificent Seven" due to their unproven AI strategies [4]. - Tesla's stock has recovered from a 45% drop earlier this year, largely due to investor optimism following its robotaxi event, despite weak vehicle delivery numbers [6]. - Apple has not made significant AI improvements to its product suite, although it has introduced new tools and updates that claim to leverage AI capabilities [8]. Group 2: Market Challenges and Opportunities - Apple is losing market share in key markets like China due to competition from Xiaomi, Huawei, and Vivo, and while it could benefit from AI, it has not yet seen significant gains from it [9]. - Alphabet's Google Cloud is the third-largest player in cloud computing, and its YouTube platform can benefit from AI, but there is uncertainty regarding how AI will impact Google Search, which is a major revenue source [10][12]. - The integration of AI into Google Search could be crucial for Alphabet to maintain its competitive edge, as it faces challenges from AI-powered search competitors [13]. Group 3: Valuation and Investment Considerations - The sell-off in Apple and Alphabet stocks may be overblown, as both companies have reasonable valuations (31.2 P/E for Apple and 18.6 for Alphabet) and generate substantial free cash flow [15]. - Apple's upcoming product launch could be pivotal in regaining investor confidence and demonstrating its capabilities in hardware and software [16]. - Alphabet's strong ad revenue from Google Search remains robust despite competition, suggesting potential for continued growth [17]. Group 4: Investment Outlook - Long-term investors may find Tesla, Apple, and Alphabet attractive despite their current underperformance, as they do not have to align with short-term market sentiment [18]. - Among the three, Alphabet presents a compelling risk-reward profile due to its low valuation, with Apple as a close second [19].