The "Magnificent Seven" have delivered outstanding returns to investors in recent years, and they continue to outperform. The Roundhill Magnificent Seven ETF is up 19% year to date, beating the Nasdaq Composite's return of 9.6%.
But not all seven stocks are up this year. Apple (AAPL 3.22%) and Tesla (TSLA 15.50%) are down 12% and 27%, respectively. Nonetheless, they have tremendous brand power in their respective markets, and neither will stay down forever. So now is a good time to compare their growth potential to see which offers more upside from here.
Apple
Apple stock rose 43% over the last three years, but it has been weighed down by market share losses for the iPhone in China. The nation generates 21% of Apple's operating profit. The company was also hit by an antitrust lawsuit by the Department of Justice in March, but that's not as concerning for investors as the slowing product revenue growth.
Despite increasing competition in China, iPhone revenue grew 6% year over year in the quarter ending in December 2023, with management giving credit to a record number of people upgrading.
But it will be challenging for iPhone sales to grow much faster over the long term. The global marketing intelligence firm IDC forecasts smartphone unit shipments will increase by just 2.6% on an annualized basis through 2027.
Nonetheless, one opportunity that management is excited about is selling more devices in the enterprise market. This could be a ripe market for its new Vision Pro headset that launched in February. Top companies like Walmart and Nike are investing in Vision Pro and learning ways to bring the device's spatial computing abilities to their employees.
The most important growth driver for Apple is increasing the active installed base of devices, which now exceeds 2.2 billion. The Vision Pro could expand this base in the years to come, and importantly, it could help drive higher spending on apps and subscriptions and other high-margin services. Earnings per share grew 16% year over year last quarter, driven by share repurchases and higher margins from services revenue.
Wall Street analysts forecast Apple's earnings will grow at an annualized rate of 9% over the long term. Assuming the stock's price-to-earnings ratio stays the same, that would lead to a return of at least 50% by 2029.
Tesla
Tesla is facing similar headwinds. Chinese electric vehicle (EV) manufacturers are gaining market share, while rising interest rates are making it more expensive for people to finance a new car this year. Revenue grew 19% in 2023 but is expected to slow to an increase of 12% in 2024.
The company shouldn't be down for long. The EV market is expected to grow 23% on an annualized basis through 2033, according to Precedence Research. In 2025, Wall Street analysts predict that revenue growth will reaccelerate to nearly 20%.
Tesla has several advantages: a large charging-station network, a sophisticated smartphone app, and investments in artificial intelligence (AI). The investments in AI are not only important for self-driving capabilities but could also help boost efficiency and profits through the use of robots in its factories.
It is already one of the most profitable automakers in the world, generating a significantly higher margin than any of the top U.S. manufacturers, but it's not done improving margins. The company is transitioning to its next-generation manufacturing process that is designed to reduce costs, which could lead to higher margins in a stronger sales environment.
The tailwind for EV sales and Tesla's ability to crank out more vehicles at a profit is why analysts expect the company's earnings to grow at an annualized rate of 15%. This would be enough to potentially double the stock price over the next five years.
Which stock should you buy?
If you're looking for the stock that has more upside potential over the next decade, I believe Tesla is the better choice.
Apple is a great business, but the smartphone market is further along the global adoption curve than are EVs, which make up a small share of annual car sales. As Tesla continues to drive down costs and release cutting-edge new models like the Cybertruck, the stock could be a rewarding investment.
